GameStop shares soar over 60% on apparent shortage, but analysts point to another reason

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GameStop Corp. GME, + 66.44%, shares soared Wednesday in an apparent short-lived contraction, but an analyst who specializes in data on short selling doesn’t think that’s the case. GameStop shares rose more than 60% on Wednesday, which would be its biggest one-day percentage gain, according to Dow Jones data, more than a week after short interest in the video game retailer’s shares exceeded the number of outstanding shares. At the last check, more than 125 million shares had been traded in the day’s session, compared to a 52-week average daily volume of 6.5 million shares.

While GameStop has 69.8 million shares outstanding, the short interest on the shares increased to 71.2 million shares on December 31 from 68.1 million shares previously, according to FactSet data. On Monday, GameStop shares rose 10% after it struck a deal with activist investor RC Ventures to add three of its members to the board, and advanced less than 0.1% on Tuesday. Additionally, on Monday, the company said that same-store holiday sales were up 4.8% and digital sales were up 309%. While noting that shorts were definitely part of the shopping binge, Ihor Dusaniwsky, the head of predictive analytics at financial technology and analytics firm S3 Partners, which specializes in analyzing data on short sales, said he disagrees. where GameStop’s price increase was the result of a squeeze. “The reorganization of GME’s boards of directors and increased Christmas sales are causing a tsunami of prolonged purchases, which is the main driver of the price movement,” Dusaniwsky said in emailed comments. “While I agree that we are seeing some shorts being squeezed out of their positions due to massive losses in market value today, this is very much like the chicken and egg question: did long purchases lead to compression of short coverage or short coverage? squeeze the lead for long purchases? “Dusaniwsky believes it is the former.” We will not see a massive drop in short stocks in the next few days, more like a 10% to 20% drop, which would mean 7 to 14 million stocks covered, which is not is approaching nearly 70 million shares traded this morning, “the analyst said.” Long-term buyers are the main force driving GME’s share price. “GameStop shares have soared more than 500% over the past 12 months, compared to a 16% gain on the S&P 500 SPX Index, + 0.40% and a 42% gain on the Nasdaq Composite Index COMP, + 0.63%.