There’s a revolution going on with video-game retailer GameStop (NYSE:GME). Oddly enough, it has little to do with gaming and instead is based on an uprising among the GME stock “apes.”
To put it concisely, apes are social-media traders battling against powerful institutional investors by attempting to push heavily short-sold stocks higher. The term “apes” is a reference to the Planet of the Apes series of films.
An argument in favor of GME stock could be made based on GameStop’s improving fundamentals. However, an entirely separate bullish thesis could be focused on the growing strength of the community of apes.
Either way, it’s not wise to take a contrarian, bearish position on GameStop now. Otherwise, you might find yourself fighting against an army of traders with tireless enthusiasm and surprising clout.
A Closer Look at GME Stock
Before meme-stock mania started in early 2021, traders didn’t pay much attention to GameStop. But suddenly, retail traders on social media sites like Reddit went on a buying spree.
GME stock was the first well-known short squeeze target of the year, and even the financial media had to acknowledge the influence of the apes. Keep in mind that this stock traded below $20 in 2020. This year, the buyers have pushed it up towards its $300 resistance level on three separate occasions.
At this point, $300 remains the price target to watch. With GME stock trading below $190, there’s still plenty of room to run.
This is not the time to bet against GameStop, even if you feel that its share price is too high. It’s entirely possible that we’ll never see the stock at $20 or even $100 again. It’s a new stock market, not the one that your father and grandfather knew. Like it or not, we all have to adapt.
Even if we ignore the ape factor for a moment, there are fundamentals-based reasons to take a bullish stance on GameStop. For one thing, the company isn’t broke, by any means. In fact, GameStop ended the second quarter of 2021 with $1.78 billion in cash and restricted cash.
Furthermore, the company had no long-term debt besides a $47.5 million low-interest loan associated with the French government’s Covid-19 pandemic response. In terms of net sales, GameStop generated $1.183 billion during Q2. That’s a fair improvement over the $942 million reported in the same quarter a year earlier.
And here’s more evidence that GameStop is in growth mode: Not long ago, the company began leasing a new, 530,000-square-foot fulfillment center in Reno, Nevada. With that lease, GameStop’s fulfillment network will be positioned to serve both coasts of the continental U.S.
All It Takes Is a Tweet
The point is, GameStop might be a short-squeeze target because it’s an underdog company. But that doesn’t mean that the company is in financial trouble. If anything, we’re seeing signs that GME stock could return to $300 just based on the company’s positive financial position.
Or the apes’ activity could get the shares to that price. Something as basic as a tweet could spark another short-squeeze insurrection, for all we know.
Case in point: Chairman Ryan Cohen recently posted a picture of himself standing in front of one of GameStop’s stores in Florida. There was no text in the tweet . Cohen didn’t even look happy to be there.
That didn’t matter, as GME stock traded over 9% higher at one point that morning. So if you thought that only Elon Musk has the power to move asset prices with a single tweet, think again.
Again, this isn’t your grandfather’s stock market. It’s unusual, but it is what it is.
The Bottom Line
If today’s stock market seems irrational, then you don’t have to participate in it. Or you can learn to understand it and adapt to its new conditions. GME stock is emblematic of not just a company, but a revolution that’s happening right now on Wall Street.
One small event, such as a tweet, could spark the next short squeeze. But even beyond that, Gamestop is a financially sound business that deserves respect from apes and non-apes alike.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.