GameStop shares rise one other 40% and shake off analyst downgrade because the epic brief squeeze continues

Copies of Grand Theft Auto V are available for sale in a GameStop store in Peru, Illinois.

Daniel Acker | Bloomberg | Getty Images

The explosive rally in GameStop shows no signs of slowing as retail investors speaking in chat rooms and hedge funds to cover their short bets against the stock surged above $ 90 per share early on in the trading day.

The video game company’s shares rose another 40% in premarket trading on Monday, after rising 51% in the previous session in heavy trading. GameStop gained 245% in January alone, rising from just under $ 6 four months ago to $ 65 per share.

The premarket jump on Monday came despite a double downgrade by the Telsey Advisory Group. The Wall Street company downgraded its GameStop rating to underperform the outperformance. There is a separation between fundamentals and valuation.

“The sudden, sharp surge in GameStop’s share price and valuation was likely fueled by brief pressures from high short interest and, to a lesser extent, retail speculation about new cycle predictions and activist involvement,” RC Ventures said Telsey analyst Joseph Feldman on Monday in the note.

“We believe the current share price and valuation level are unsustainable and we expect the fundamentals to allow stocks to revert to more normal / fairer valuation,” the company added.

GameStop, a brick and mortar video game retailer, was a popular short stop on Wall Street. In fact, more than 138% of the float stocks had been borrowed and sold short, the most abbreviated name on the US stock market, according to FactSet, citing recent records.

On January 11, it was announced that activist investor and Chewy co-founder and former CEO Ryan Cohen will join GameStop’s board of directors. The stock rose after the announcement in hopes that Cohen would drive a strategy change at the retailer. The jump sparked a rush of short covering from hedge funds and traders betting against the stock. If a short stock trades significantly higher, short sellers would have to buy back stocks to reduce their losses, which further fuel the rally.

GameStop has now also been a hot topic in online chat rooms, Twitter and Reddit as some retail investors and day traders aim to drive stocks higher and root out short sellers.

A post on the popular “wallstreetbets” Reddit on Monday morning said, “I don’t sell this until at least $ 1000 + GME.” And this post already has more than 900 comments.

Citron Research, a vocal GameStop short seller, said Friday that GameStop would no longer be commented on due to attacks by the “angry mob” who own the stock. Citron said too many people hacked Citron’s Twitter account on Friday and canceled a live stream listing five reasons the stock will climb back to $ 20.

Telsey’s 12 month price target is $ 33. According to FactSet, the average target price of analysts is only USD 12.39, which is well below the value it traded on the Monday before the stock market trade.

Subscribe to CNBC PRO for exclusive insights and analysis as well as live business day programs from around the world.

Comments are closed.