GameStop (NYSE:GME) is the original meme stock. It gained a cult following in 2020 and is now on a major run again. GME stock has more than doubled in the past two weeks from a low of $78.11 on Mar. 14 to a peak of $189.59 on Mar. 28.
The only real news up until Apr. 1 was that insiders were buying heavily. But, as I wrote earlier, the market suspected something was up. They found out what it was late on Mar. 31.
Right after the market close on Thursday, Mar. 31, GameStop announced plans to do a stock split. The company is now seeking shareholder approval at its upcoming annual meeting for an increase in authorized shares. If approved, the number of shares will more than triple from 300 million to 1 billion. Details on the actual stock split were not given.
As Reuters points out, stock splits are becoming more common with companies that are looking to manage their stock prices. They quoted a JP Morgan (NYSE:JPM) analyst who said that splits are seen as a way to push their stock price higher. This is despite the fact that mathematically, the split has no real meaning. This makes the insider buying earlier in the month highly suspect.
For example, on Mar. 22 and 23, Ryan Cohen, the Chairman and co-founder of Chewy (NYSE:CHWY), bought more shares in the company. He bought enough to raise his stake up to 11.9%. This was after the company reported terrible fourth quarter news, including negative free cash flow, ongoing losses, and analysts saying there was no strategy.
At the time, he bought GME stock at an average price of $101.76, spending $10.2 million. Moreover, a few days later, other insiders bought shares.
No one really understood why the stock was rallying. So, now they know. Insiders knew there would be a stock split. Investors assumed there was something in the wind — otherwise, why were insiders buying so many shares on terrible fundamental news?
At this point, GME seems to be cooling off. But the stock’s volatility could push it dramatically lower or higher from here. Investors should be careful.
On the date of publication, Mark Hake did not hold (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.
