GameStop GME, -2.35% could be unstoppable action. Shares of the Texas-based video game retailer fell more than 10% at Monday’s open on news that the company announced it has the option to sell up to 3.5 million common shares in the near future. But as has been the case with OG meme stock, the legion of devoted GameStop fans on social media and free-of-charge trading platforms began buying when the price fell, briefly pushing the stock to green at noon before closing. the day with a drop of only 2.4%.
The company’s decision to use new shares to raise capital was an expected one, but the possibility that GameStop shares would dilute, after trading for weeks well above Wall Street analysts’ estimates, played into the thesis. from institutional investors who have been shorted out of stocks. , creating the philosophical war between hedge funds and retail traders that has gripped the stock market for months. On Monday, retailers took to Reddit to praise GameStop’s latest move even as its share price plummeted, highlighting the fact that GameStop’s filing includes language that it will stop any new stock offering if it raises a thousand. millions of dollars. Prepared to push the stock back up to the January high of nearly $ 350 a share, Redditors launched into a new strategy to have their cake and eat it too, without any share dilution. “3.5 million shares, with a maximum total capital inflow of $ 1 billion,” stated one user on the Reddit r / Superstonk board. “Which means that if the price rises above $ 285,714 / share, then less than 3.5 million new shares are launched.” “GameStop will profit from greedy hedge funds,” posted another. Shares in GameStop soared 16% in two hours of trading as this new strategy took hold, with some users posting that the early morning short simply offered them a discount on the shares. A Wall Street analyst agreed. “It’s the definition of insanity,” said Wedbush’s Michael Pachter. “Shorts keep doing the same thing over and over again and expect a different result, and now [Reddit] guys get it. They’re saying ‘As long as you keep covering, we’ll keep buying.’ Pachter now sees GameStop as the existential battleground between retailers and the street. “When shorts drop out of this, it will start trading fundamentals,” Pachter said of GameStop. “The best operating retailers in their class make an operating profit of 5%, which will be very difficult for GameStop to achieve, but if they only raise $ 700 million in a small offer, their value has already increased.” The retail crowd seems to agree. “I mean, we can just * buy * the 3.5 million shares before the hedge funds get hold of them,” posted a Reddit user on Monday.