GameStop Corp.’s stock movement continued to turn efficient market theory on its head Wednesday, streaking to a record that valued the retail chain at more than $20 billion.
GameStop GME shares rose as much as 157% to an intraday high of $380 in morning trading Wednesday on volume of more than 74 million shares, continuing a trend of GameStop being one of the most traded stocks in America, topping market heavyweights like Apple Inc.
and Tesla Inc.
The stock has an average daily trading volume of about 10 million shares over the past 52 weeks, an average that has grown rapidly in recent days.
GameStop was joined Wednesday by a host of other heavily shorted stocks targeted by investors after users on a Reddit message board encouraged readers to attempt to force short squeezes in such stocks. The most prominent was theater chain AMC Entertainment Holdings Inc.
which more than tripled in Wednesday trading. Bed Bath and Beyond Inc.
shares rallied 32%, National Beverage Corp.
shares surged 27%, Ligand Pharmaceuticals Inc.
shares rose 19%.
With Wednesday’s move, GameStop shares are up nearly 1,800% year to date, or, more accurately, over the past 17 trading days, as social media traders on Reddit with long positions troll Wall Street firms who are trying to grab every possible short position there is for a stock with an average analyst price target is $13.44, according to FactSet data. The rocket was launched on Jan. 13, when GameStop shares surged more than 60% in one day.
Some brokerages were limiting trades in the stocks, as a backlash formed. In a news conference Wednesday, White House Press Secretary Jen Psaki said that the Biden administration’s economic team, led by newly installed Treasury Secretary Janet Yellen is “monitoring the situation” involving GameStop. A top securities regulator in Massachusetts said GameStop trading should be halted for a month, and famed “Big Short” investor Michael Burry — who bought into GameStop publicly last year — said that there should be “legal and regulatory repercussions” for the “unnatural, insane, and dangerous” trading.
Ihor Dusaniwsky — the head of predictive analytics at financial technology and analytics firm S3 Partners, which specializes in analyzing data on short selling, told MarketWatch he has “never seen price action on a heavily shorted stock like this before,” and that “only Tesla is in the same ballpark.”
GameStop on Wednesday joined the ranks of Tesla, Apple and Amazon.com Inc.
as stocks that have more than $10 billion in short interest, according to S3 data. Tesla Chief Executive Elon Musk tweeted about GameStop stock on Tuesday afternoon, seemingly adding to the mania.
Short positions currently make up an impossible 140% of GameStop’s float, which is the result of a flaw in how short interest is calculated, a flaw that’s getting greatly magnified in the case of GameStop, according to Dusaniwsky.
A short sale creates “synthetic longs,” that get factored into the calculation, he said. In the simplest of terms, when a short sale occurs, there’s a short position calculated for each share as the short seller borrows the stock, but then two long positions get factored into the equation, one for the long position of the institutional beneficial owner of the stock and one for the long buyer on the other side of the short sale, the analyst explained.
“All three investors have the right and ability to buy and sell their shares at any time so while [the stock’s] float has not changed, the amount of [the stock’s] tradable shares has increased,” Dusaniwsky said.
Correcting for synthetic longs leaves GameStop with about 58% of its float shorted, according to Dusaniwsky. At $380 a share, that would put shorts down $25.87 billion for the year to date, he said.
Similarly, stocks with very high short interest of 50% or more (using the standard calculation that includes “synthetic longs”) were on the rise Wednesday.
B of A Securities analyst Curtis Nagle, who has underperform rating and raised his price target on GameStop to $10 from $1.60, said in a note Wednesday he expects shares to start falling back to earth when the company reports weak holiday earnings around April.
“While it is difficult to know how much very high short interest and retail ownership could continue to put upward pressure on shares (both driving tight share supply and volatility), we think fundamentals will again factor into valuation,” Nagle said.