GameStop Defies the Odds.
If there's one stock that's hard to like, it's GameStop (GME). Shares of this video game retailer have been crushed. Despite a roaring bull market, GameStop shares have actually lost ground for six consecutive years, topped off by a massive 51% loss in 2019.
Is this stock so bad that it's good? One of the reasons GameStop is interesting is because the stock is so widely disliked. This is what we call a contrarian play, since it flies in the face of conventional wisdom.
GameStop is one of the most heavily shorted stocks in the market. This makes sense, because GameStop faces a ton of competition, including Apple's new Arcade gaming service.
According to the most recently available stats on shortsqueeze.com, GameStop's short interest is over 55 million shares. This is for a company that has only 65 million shares outstanding. At normal trading volume, it would take over 15 days for traders to cover their short positions in GameStop.
If a trader sells a stock to open a position, he or she must buy that stock back to close the position. Because of this, every short seller is a future buyer.
Volume in GameShares has been anything but normal in recent days, and some of that is likely due to short covering. The stock has exploded from a rounded bottom pattern on high volume, and is now trading at its highest level in over a year.
The bottom line: When it comes to long-term investments, there are many better choices than GameStop, but for a short-term trade, the stock's large short position could present an opportunity.
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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and his work, click here.