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Why GameStop Is Heading Lower Today

By Rich Duprey – Aug 18, 2021 at 11:27AM

Key Points

  • GameStop's stock has been in a state of flux since the end of July.
  • Subreddit stock traders are still holding on for a moonshot from the retailer.
  • Short interest continues to fall, indicating shares won't be launched into the stratosphere.

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The video game retailer has been trading sideways for weeks now.

What happened

Shares of GameStop (GME 1.23%) are down about 2% in morning trading Wednesday on a day the overall market is flat. Yet that about sums up how the video game retailer is trading in the month of August as its stock is virtually unchanged since the end of July.

So what

As one of the original meme stocks, the negligible advance or decline of the stock in nearly three weeks is unusual, but the short interest in GameStop shares continues to diminish. Shares sold short fell to almost 7.7 million at the end of July, or 12.3% of outstanding shares. It was the fourth consecutive period of decline, and days to cover, or the amount of time it would take short-sellers to cover their position, has been reduced to just over a day (anything over seven days is considered a lot and makes the stock ripe for a short squeeze).

A rocket launches into space.

Investors keep holding on for a GameStop moonshot. Image source: Getty Images.

That's important because it is a short squeeze that many of the r/WallStreetBets traders keep looking for. Read through any internet stock forum and you will still see calls for fellow traders to "hold on for dear life" because GameStop is poised to go to the moon. That's looking less and less likely.

Now what

Investors would be better off looking at the prospects GameStop's business has for recovery. The retailer is transitioning to an online-oriented model for gamers, and though it's risky, still holds out a chance for success.

At over $160 per share, or twice its sales, GameStop is no bargain. Rather than a moonshot, investors have a better chance of seeing it head to the basement. They should be watching for that to occur because it could be an opportune time to buy.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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