GameStop Stock increases as short sellers receive success

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Short sellers of

GameStop

the actions have just been squeezed. Shares of the video game retailer rose nearly 94% on Wednesday, though earnings fell to 57% at the close of the market.

In an email to De Barron, Ihor Dusaniwsky, of S3 Partners, noted optimism after news Monday that Chewy co-founder Ryan Cohen and two other former Chewy executives joined the GameStop board (marker: GME). This, coupled with the results of holiday sales, seemed to trigger “a long buying tsunami,” according to Dusaniwsky

De Barron noted recently, citing short-term sales data from S3 Partners, that stocks appeared to be poised for a short-term decline, when demand for shares rises briefly as investors rush to hedge the price will go down. Investors have opted for GameStop stocks, given industry trends, such as the growth of free online games. The growing trend of consumers to buy games online, rather than buying copies in stores, has left the company’s physical disc business in an awkward place.

With growing competition from e-commerce sites and larger retailers

Walmart

(WMT),

Best buy

(ABY) i

Goal

(TGT) will probably need a bold new strategy for GameStop to change things. Investors, for now, seem to be betting on Cohen and the company may find one.

During Wednesday’s close, more than 143.5 million GameStop shares were traded, nearly double the previous volume of 77.15 million shares on Oct. 9, according to Dow Jones Market Data. Shares closed up 57%, at $ 31.40, which was their highest close since August 2016.

According to S3’s Dusaniwsky, short sellers fell $ 812 million in marked market losses during the day.

“While I agree that we are seeing some shorts being removed from their positions due to the massive losses in the current market, this is very similar to the issue of chickens and eggs,” he wrote. Dusaniwsky, who added that he believes the long purchase led to short coverage, rather than the other way around.

Dusaniwsky does not expect a large drop in short-term stocks over the next few days, noting that short sellers lost $ 968 million in 2020 to marked market losses. Instead of leaving, short sellers increased their positions.

Ronnie Moas of Standpoint Research downgraded shares in Hold from Buy after the move. Moas noted that he recommended the name on December 29, 2016, when the shares were trading around $ 25.

“I can no longer leave my highest recommendation attached to this name given the recent absolute and relative movement,” he wrote Wednesday.

GameStop shares have had their fair share of one-day appearances. A deal with

Microsoft

caused a 44% concentration on Oct. 8, but analysts noted it looked like a mundane announcement of cloud-based infrastructure. Even with some profit sharing in Microsoft’s Xbox Game Pass Ultimate GameStop sales, it didn’t seem to move the needle.

“The share of profits helps, but it may not be incremental compared to the loss of sales / profits from the switch to digital. And, more digital, it still means less used [games], the main driver of profits and loyalty [for GameStop]”Credit Suisse analyst Seth Sigman wrote at the time.

Write to Connor Smith to [email protected]