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Why GameStop Stock Jumped 28% in May

By Jeremy Bowman - Jun 3, 2021 at 10:28PM

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Shares of the video game retailer surged on the meme stock rally last month.

What happened

Shares of GameStop (GME -6.39%) gained 28% last month, according to S&P Global Market Intelligence, as the meme queen again caught fire with investors on Reddit's WallStreetBets board and other online forums. Several of the popular meme stocks from January rallied toward the end of the month.

As the chart below shows, the video game retail stock lagged for most of May but then surged over the last few sessions.

GME Chart

GME data by YCharts

So what

GameStop shares started rallying on May 25 as traders once again tried to execute a short squeeze, and the stock gained on high volume for much of the rest of the week. Nearly 30% of GameStop shares were sold short as of mid-May, which is a significant amount but considerably less than when that percentage was above 100% in January -- when the stock skyrocketed by more than 500% in just a few days.

A group of young people playing a video game

Source: Getty Images.

At times, GameStop investors have argued that the company can reinvent itself with e-commerce. They've seen a potential savior in Ryan Cohen, the Chewy co-founder, who now sits on the board, but the bull case for the stock still seems thin, especially at its current valuation.

GameStop did stay that it was hiring a team to build a nonfungible token (NFT) platform, which seemed to feed the rally, as that would be one way for the company to stretch its brand beyond brick-and-mortar retail.

Now what

The meme stock rally continued into June with AMC Entertainment stock nearly doubling in a single day, lifting peers like GameStop. Through the first three days of the month, GameStop gained another16%.

Looking at fundamentals, there are plenty of reasons to sell GameStop at the current price; this is essentially a no-growth, money-losing company that's operating in a declining industry -- selling video game cartridges. However, GameStop isn't trading based on those rules, as meme stocks move according to the machinations of masses of retail investors without regard to fundamentals.

It's impossible to know where the stock will go from here, but one thing's certain: The stock will remain extraordinarily volatile.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Chewy, Inc. The Motley Fool has a disclosure policy.

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