The battle lines being drawn. Nobody’s right if everybody’s wrong. Young people speaking their minds, getting so much resistance from behind.
Those are the lyrics of a song, “For What It’s Worth” by Buffalo Springfield, a 55-year-old classic, an anti-Vietnam war song. Oddly it might be an anthem for the younger investors who have flooded the Wall Street Bets site with positive commentary about GameStop (GME) , the long-in-decline brick and mortar store that has been the target of perpetual shorts all the way down from $47 five years ago to $4 in 2020.
Not that long ago, many on Wall Street considered GameStop a goner. Several iterations of management and several attempts at restructuring have failed, a combination of the video games gone digital and the mall gone bye-bye.
Until an important confluence of events occurred, starting with a shortage of the new Playstation and Xbox devices, devices that GameStop features, and the addition of Ryan Cohen, the founder of the phenomenally success Chewy (CHWY) , to the board of GameStop just last week. Cohen took a 14% stake in the chain last August and the presumption is that he’s got a plan to save the chain.
Now the company’s been silent the whole way, but the stock has ramped from $17 to $65 in the last few weeks with a pitstop and a halt in trading at $76 on Friday. Today it looks up another 20 points as short sellers are being forced to cover because they can’t find shares to borrow to sell anymore.
It’s been an incredible win for the buyers of GameStop, including the vociferous Wall Street Bettors, who managed to get in before the levitation. I salute you!
And it has been an incredibly bad wager by the short sellers who have borrowed about 150% of the entire stock available, meaning that they have overextended their bets and been unable to cover as this run has gone on.
So what’s this all about? I think it amounts to a street fight somewhat like the one that Bill Ackman waged against the longs in the epic battle over the Herbalife (HLF) . In that case Ackman spread the story that Herbalife was a fraud. The longs, including Carl Icahn, regarded it as a legitimate company. Did Icahn want to burn the shorts? It doesn’t matter; he has the right to be vocal about whatever he thinks is right as long as he’s not being fraudulent and he wasn’t.
So, back to GameStop. I think the stock has gotten overvalued, and the insider selling has been pretty aggressive. I also think that one could argue that Cohen is a miracle worker and if the company were to take advantage of the stock’s new height and sold stock it could actually reinvent itself in a solid way.
If you are short the stock you may think that the Wall Street Bettors are acting in concert and should have to file as such. If, together, including options, which has been the preferred way to advance the stock, the government might question their disclosure. And some market makers who sold out of the money calls to these people might squawk to the government that they are manipulating the stock to create a short squeeze in concert hurting the market makers illegally to do so. I think that’s lame, but they might try to claim that. Remember, in court, anyone can claim anything.
Me? I think the longs have every right to press their case; is it much different from a Wall Street analyst saying the stock should go to the moon? In my view it is protected free speech. If they like the stock and want to cheerlead about it, more power to them! It’s shareholder democracy not shareholder contempt like I hear so often on TV, and I like it.
The only thing that the government may be upset with is if it is a glorified pump and dump scheme. I have seen no evidence of that. To me the fight is just about the value and I have to agree that the shorts can make a good case that the stock is too high unless there is a plan by the company to raise capital and deploy it intelligently.
It’s a valuation short and those are always tough to prevail over.
Where do I come out? Is everyone right? Conceivably. But unless the Wall Street Bettors have committed some kind of fraud, which I can’t find, then it is just a question of how high or low the stock can go. And if you want to buy it, you want to rely less on cheerleading or possible governmental examination and more on for what it’s worth.
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