GameStop (NYSE:GME) has done it again. Shares are up nearly 50% in intraday trading thanks to a powerful short squeeze and an even more powerful cult of followers. So where is GME stock headed next?
Investors are likely familiar with the story here. Chewy (NYSE:CHWY) founder Ryan Cohen became an activist investor in the old-school, brick-and-mortar video game retailer. He promised to help it rival Amazon (NASDAQ:AMZN), beefing up its e-commerce business. His backing, and his bold plans for the future, set a plan in place that would have GME stock gain more than 1,000% in just a few months.
Then, GameStop added Cohen and two other Chewy executives to its board of directors, confirming they were part of the turnaround plan. Right now, investors do not have a whole lot of details. Instead they are hoping that with new leadership, GameStop really will become the next Amazon. And if not? They just want to make a whole lot of money, sharing their hopes with social media communities and trading on platforms like Robinhood.
Enter Citron Research. Citron angered many GME stock fans, promising a livestream that would tear the stock apart and lay out the case for shares to hit $20 once again. The firm rescheduled, delayed and then ultimately cancelled the live stream, citing hacking concerns. Bulls were not convinced. Instead, they saw Citron backing down from a livestream as proof they were right. Citron did release its five-point plan, but it was not enough to turn the GameStop ship back around.
GME Stock and the Internet-Fueled Short Squeeze
As Rich Smith wrote for the Motley Fool, not all of the arguments from Citron Research fully hold up. In fact, the firm claims that no short squeeze is at play, citing the amount of shares available to borrow and short. For those unfamiliar, a short squeeze happens when a rising stock price forces short-sellers out of their position. When panic strikes and those sellers buy back stock, they send shares even higher. Here, you have what InvestorPlace Markets Analyst Tom Yeung calls a powerful feedback loop.
Yeung also sees GME stock as being a particularly relevant candidate for a short squeeze. Right now, 71.2 million of its shares are being sold short. That is even more than its total outstanding share count!
So what does this mean? As Yeung says, there is no way out for bears. Even if you agree with Citron and Left, you would not be able to drive the share price back down.
Earlier today, Yeung outlined a case for GameStop to touch $60 and stay there. With its massive rally, shares have already crossed that target. However, Yeung also recognizes that there is a lot of risk here. For investors, make sure you understand the influence of a short squeeze and the GME stock cult. But if you are betting on turnaround stories, GameStop is one to watch.
On the date of publication, Sarah Smith did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Sarah Smith is a Web Content Producer with InvestorPlace.com.
