What happened
Shares of GameStop (GME 1.21%) continued their rapid ascent on Thursday. As of 1 p.m. EST, the video game retailer's stock price was up more than 20%.
So what
GameStop's share price has more than doubled this week. The gains followed the company's announcement on Monday that it would add three new board members, including Chewy founder and former CEO Ryan Cohen, who is one of GameStop's largest shareholders. The new board members are expected to boost the game retailer's e-commerce and online marketing capabilities.
"We are excited to bring our customer-obsessed mindset and technology experience to GameStop and its strategic assets," Cohen said in a press release. "We believe the company can enhance stockholder value by expanding the ways in which it delights customers and by becoming the ultimate destination for gamers."
GameStop's shares extended their recent gains on Thursday. Image source: Getty Images.
GameStop also announced its holiday sales results on Monday. Highlights included a 4.8% rise in same-store sales and a 309% surge in e-commerce sales. GameStop's total sales, however, fell 3.1% to $1.8 billion, due to store closures.
Now what
While GameStop's announcements gave investors reason to be hopeful, much of its stock's recent gains may be due to a short squeeze. GameStop is one of the most heavily shorted stocks in the market. Shorting allows traders to bet against a company and profit from a decline in its stock price. But when the price of a highly shorted stock rises quickly, short-sellers are often forced to close out their positions to avoid further losses, which requires them to buy the stock. This can accelerate a stock's gains.
This type of short squeeze could be responsible for at least part of GameStop's recent rally. However, the gains might not be sustainable. GameStop is facing a host of challenges, most notably the shift from traditional game sales to digital downloads, which remains an existential threat to its retail store network.
