Gamestop (NYSE :GME) reported some very good news on June 9 and the stock fell.
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An adjusted net loss of 45 cents per share was offset by a 25% sales gain to $ 1.28 billion. This happened despite the closure of 12% of the company’s stores.
As of May 1, there was still $ 770.8 million in cash on the books, as the company sold new shares to begin a shift to e-commerce, led by former executives of Amazon.fr (NASDAQ :AMZN).
Why, then, have stocks collapsed? Because the numbers don’t matter. What matters is how small WallStreetBets traders feel, and they feel ripped off. Outgoing CEO George Sherman left with shares vested in $ 179 million. Other executives also stood out. New guys could also make millions, without performing, from title wins.
So far, they are the big winners in the game.
GME stock: is the squeeze still on?
Gamestop share price is not based on fundamentals. It’s based on a short press, or the perception of one. With Gamestop adding a new off-the-shelf record to issue new stocks (which shorts can buy to hedge their bets), that perception is diminishing.
According to Twitter (NASDAQ :TWTR) Wallstreetbets account, the most popular tickers on June 11 are AMC Entertainment Holdings (NYSE :AMC), Blackberry (NYSE :BB) and Health Clover (NASDAQ :CLOV). Gamestop is missing. This despite the fact that Igor Dusaniwsky of S3 Partners gave the stock a “short squeeze score” of 100 out of 100. (He previously measured it at 10 out of 10, but 100 seems bigger.)
All the juice was not squeezed. After falling 27% on June 10, stocks rebounded in thin pre-market trade on June 11, recouping a small portion of the loss. What scares traders the most is a Securities and Exchange Commission (SEC) investigation into past trading activity.
What keeps stocks afloat, besides meme-inspired money, is a bearish commentary, like Baird calling Gamestop worthless. Comments like this encourage shorts, and shorts encourage compression.
Ryan Cohen’s play
The practical result of Gamestop compression has been to install soft (NYSE :ALL) co-founder Ryan Cohen as chairman and, now, Amazon veteran Mike Furlong as CEO. Furlong was not with the Amazon Web Services cloud unit. He was in charge of operations in Australia. The new CFO is Mike Recupero, who managed numbers for Amazon Prime Video.
Together, these three men are supposed to create a new business model for Internet-based Gamestop. Until now, that involved repairing a warehouse in Pennsylvania to sell games and systems online.
But that won’t justify a market cap of $ 15.8 billion, or 3 times sales in the first quarter. If Gamestop could use gamers’ cash to help Amazon launch Twitch, its video game entertainment unit, it might be tempting. If he could use that treasure to help bring Gabe Newell’s Valve to the public, that might be interesting as well.
The problem is, this last paragraph is pure speculation. As far as I know, no evolution towards cloud gaming is envisaged.
GME actions: the result
I never recommend short selling stocks. Even when you are right, you can be wrong.
When you sell a stock short, you borrow it by promising to buy it back. This means that a hedge fund, or just a nasty online gang, can offer stocks and squeeze you, regardless of fundamentals.
The game is 150 years old, but the modern model is the Herbalife (NYSE :HLF) compression of the last decade. I covered the story for TheStreet. Hedge fund manager Bill Ackman made a public bet against Herbalife in late 2012. Other hedge funds backed the title. Ackman lost his bet.
Since the strongest of the squeeze at the end of 2013, Herbalife is up 56%. But that’s less than half the lead of the average S&P stock.
At the time of publication, Dana Blankenhorn held LONG positions in AMZN. The opinions expressed in this article are those of the author, subject to the InvestorPlace.com publishing guidelines.
Dana Blankenhorn has been a financial journalist since 1978. Her latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on the technology available on the Amazon Kindle store. Follow him on Twitter at @danablankenhorn.