GameStop (NYSE:GME) gained a cult following in 2020 and shot up during 2021. As of April 27, GME stock is down just 12.5% from the end of last year at $129.84.
The only real news up until April 1 was that insiders were buying heavily. On March 31 GameStop said it would do a stock split. It will go into effect sometime shortly after its annual meeting approves it at a shareholder meeting on June 2.
Investors initially bid up GME stock as a result. It reached a peak of $189.59 as of March 28. So far the details of the split are not announced, but the shareholder meeting incorporates a provision for a tripling of the number of shares outstanding. I suspect that means there will be at least a 2-for-1 stock split. Now GME stock has drifted down to $129.84, a drop of over 31.5% from its recent peak.
Where Things Stand With GME Stock
Analysts now forecast that GME stock will fall to $47.67, a decline of over 63% from here, according to Refinitiv’s survey of three analysts. Most other surveys also show that analysts are very negative on GME stock. For example, TipRanks reports that one analyst has a price target of $30, down over 76% from here. The problem is many analysts have either dropped coverage or aren’t going to follow GME stock. It is simply too volatile.
And now there is news that a hedge fund has downsized based on the losses it had trying to short the stock. According to Reuters, Melvin Capital lost nearly $7 billion early last year by shorting GameStop and related meme stocks. It is planning to shrink to $5 billion from the $8.7 billion it managed at the end of March. To do this it plans on returning capital to investors every time it reaches $7 billion for more than 90 consecutive days. The point is it wants to be more nimble and not get clobbered on positions like its short position in GME stock.
In other words, both the buy-side and the sell-side of the institutional side of Wall Street have gotten GME stock very wrong. What else is new? Wall Street gets stocks wrong all the time. Who knows whether they will get this stock right, especially if the stock split kicks it higher. So far they haven’t.
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.
