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Why GameStop Stock Popped Then Dropped Today

By Jeremy Bowman - Updated Feb 8, 2021 at 3:49PM

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Shares of the video game retailer continued to be volatile.

What happened

Shares of GameStop (GME 9.35%) opened 13.5% higher today, but by 10:15 a.m. EST, the stock was in negative territory. There was no news out on the stock today. Rather, the movement seemed to be the now-regular ebb and flow of traders on WallStreetBets and elsewhere looking to capitalize on the stock's volatility and perhaps spark another short squeeze , though that seems much less likely now.

As of 1:54 p.m EST, shares of the video game retailer were down 6.7%.

A group of young people playing video games

Image source: Getty Images.

So what

After surging higher on an unprecedented short squeeze in January, GameStop shares collapsed last week as the squeeze ran out of momentum, traders took profits, and the stock returned closer to its fundamental value. Last week, the stock plunged 80%.

The stock is still being actively discussed on platforms like Reddit and Twitter, but the likelihood of another such short squeeze seems remote, especially as the market is now aware of the strategy. Carson Block, the head of Muddy Waters Research, said on CNBC this morning that the short squeeze had been "telegraphed" months ago when it was being discussed on WallStreetBets, making another run back up into the triple digits unlikely for the stock.

Now what

While traders hoping to score a quick gain are likely to continue to move in and out of stocks like GameStop and other WallStreetBets stocks for the foreseeable future, it's worth remembering that the underlying business is still facing a number of challenges. GameStop hasn't been profitable since 2018; it's rapidly closing stores, and its core business model is being upended by the shift in gaming from analog to digital, meaning the cartridges it sells are becoming obsolete.

The company posted 309% e-commerce sales growth over the holiday season, but overall revenue was still down 3.1% to $1.77 billion. Investors are excited about the influence of Chewy Co-Founder Ryan Cohen and the company's potential in e-commerce and even e-sports, but the fundamentals are still ugly. Based on that reality, the stock could still have further to fall.

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$100.38 (9.35%) $8.58
Twitter, Inc. Stock Quote
Twitter, Inc.
TWTR
$38.32 (2.49%) $0.93
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$27.65 (4.07%) $1.08

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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