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Why GameStop Stock Continues to Run Up

By Howard Smith - Mar 10, 2021 at 10:32AM

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Retail investors are piling in as a business transformation is expected to begin.

What happened

Retail traders on Reddit's WallStreetBets forum caused quite an uproar driving short squeezes in late January, an uproar that ended in a well-publicized congressional hearing. But that wasn't the end of the story, and GameStop (GME 11.54%) shares are running again, up more than 450% in the last month.

Most recently, a second run in the stock that began this week continues today, with shares up another 14% at 10 a.m. EST. 

So what

The resurgence comes as some underlying business news combines with the retail trading momentum. Earlier this week, GameStop announced it has formed a new "strategic planning and capital allocation committee" to be led by Ryan Cohen. Cohen, investors may remember, was the spark that ignited the initial short squeeze in GameStop shares. 

kids in masks playing online video game

Image source: Getty Images.

The business that was being shorted by hedge funds in the growing world of e-commerce added Cohen to its board of directors in January. Cohen co-founded, and then successfully sold, online pet retailer Chewy (CHWY 5.58%). WallStreetBets followers believed he could rejuvenate the struggling brick-and-mortar GameStop business into an online force in video game sales. 

Now what

The new committee aims to convert GameStop into a "technology business." It will explore several ways of expanding digital channels and adjust its current organizational structure. The question for investors is whether the Reddit crowd has put the stock in a bubble with its excitement or the business can actually grow online to meet the valuation. 

Investors should have more to go on when the company reports its fourth-quarter and fiscal-2020 earnings after the market closes on March 23. 

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Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
$128.46 (11.54%) $13.29
Chewy, Inc. Stock Quote
Chewy, Inc.
$25.54 (5.58%) $1.35

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