What happened
The day that investors in GameStop (GME 1.50%) have been waiting for finally arrived this week, and it is turning out to be underwhelming. Shares of the video game retailer are down 7.3% at 11:33 a.m. ET on Friday, not quite the result many meme-stock traders were looking for today.
GameStop's stock split 4 for 1 after the market's close yesterday and began trading at the new split-adjusted price upon its opening this morning. Some investors had pinned their hopes on the split to trigger the "mother of all short squeezes," but it is not materializing.
So what
Because GameStop shares are heavily shorted, with more than a fifth of its shares outstanding sold short, meme-stock traders thought the retailer's decision to package the split as a "dividend" would initiate some sort of financial pain for the short-sellers.
However, split language like that is more of an accounting issue and does not have the same kind of impact that a regular dividend payment would incur (which short-sellers would have to pay). Instead, short-sellers see the same sort of reduction in the price of the stock they shorted that longs do, and when they finally cover their position, they have four times as many shares to buy back, but at one-fourth the price.
That's why investors are cautioned that stock splits are essentially non-events. Although they're often seen as bullish indicators for a company, they change little about its financial condition or operations.
Now what
GameStop shares had enjoyed a nice run-up in value since the split ratio was announced, but it seems that a form of "buy the rumor, sell the news" is at play with the video game retailer's stock.
