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He Game stop (NYSE:GME) stock price has been in the news again in recent weeks. It has caught the attention of traders, retail investors and market analysts, reminiscent of the frenzy seen during the 2021 short squeeze.
So why wouldn't you touch this town with a barge?
What's happening?
GameStop shares were trading 70% higher than Friday's closing price in pre-market trading. However, when the market opened on Monday, the stock fell from around $40 per share to $30.
It is still above Friday's closing price.
As a reminder, GameStop is not a hot tech stock, it's a video game and collectible retailer. Before the meme stock craze of 2021, it was a declining company. Many traders held “short positions” in the stock as they believed the stock price was likely to fall.
Then in 2021, GameStop was subject to a brief squeeze when Reddit users drove up its stock price, forcing short sellers to buy back the shares at higher prices. This caused short sellers, including hedge funds, to lose billions of dollars.
Another brief squeeze
Once again, it's all about social media.
On Sunday, Keith Gill, who has a significant following among the Reddit trading community and goes by the name DeepF******Value on Reddit and Roaring Kitty on YouTube and xposted a screenshot of what many assume to be his portfolio.
According to the publication, Gill owns 5 million shares of GameStop, valued at $115.7 million, based on Friday's closing price. This follows Gill's return to social media in early May after a three-year hiatus. On May 12, his post suggesting he was watching the stock sparked a buying frenzy in GameStop.
It's like the short squeeze of 2021, but apparently less successful.
With the stock price rising in May, GameStop raised $933 million through a stock sale. Short sellers lost up to $1.5 billion.
Why buy meme stocks?
GameStop stock rose on Robinhood's 24-hour trading Sunday night and gained more momentum in pre-market trading Monday morning.
Currently, the stock is up 32% in five days. But why?
Well, as before, the rally appears to be driven by renewed enthusiasm from retail traders and investors, particularly those active on social media platforms like Reddit's WallStreetBets and r/SuperStonk.
However, these investors do not speculate on the stock's potential. It is a “meme stock,” where retail investor enthusiasm fueled by social media creates significant price volatility.
Why am I not investing?
Of course, investing in meme stocks could give me the opportunity to make a lot of money quickly. But I'm not desperate and I could also lose a lot quickly.
Instead, I invest for the long term and choose stocks that are undervalued relative to their prospects.
While GameStop's cash position has improved significantly thanks to the recent share sale, I am not investing in the business.
The stock currently trades at 2.314 times forward earnings. That makes it very overrated and just not something I would consider.
It's worth noting that part of GameStop's intrinsic value is tied to the likelihood of future meme rallies. But it's not something I'm going to waste my time on.
