The surge in GameStop may bring back memories of early 2021, but today's investment landscape is fundamentally different:
GameStop is back on the menu.
Shares of GME opened on Tuesday at $60.38, less than a month after trading around the $10-mark in mid April. Over the past two sessions, shares were up 141%. With a surge this dramatic, it's hard not to be brought back to the heady days of GameStop in early 2021.
But 2021 was three years ago. We are no longer in the height of the COVID-19 pandemic, inflation has gripped the American economy and life feels very different than it did back then. So before explaining away the 2024 surge in GameStop (GME) as a repeat performance of 2021, it's important to note that the investment landscape is fundamentally different than it was back then, both for the general public and the most faithful GameStop investors.
"Retail traders are not just sitting at home with little to do aside from trade stocks. The Federal government has not just air dropped trillions of stimulus money. Yes, we're sure that we will hear more about meme stocks in the weeks to come, but not with the same fervor as 3 years ago," said Nicholas Colas, Co-founder of market analysis group DataTrek Research.
Although GameStop fervor reached its peak in early 2021, it had been months in the making. Keith Gill, aka Roaring Kitty, had been posting about his bull theory for GameStop since the summer of 2020, and mentions of GME in the subreddit r/wallstreetbets started growing in the second half of 2020.
Part of the GameStop bull theory by Roaring Kitty in 2020 was that it was a potential short squeeze play. Short interest was over 100%, meaning that shares had been lent out, shorted and lent again until more shares had been shorted than the available number of shares. When the intense buying pressure for GME came in 2021, short sellers lost billions of dollars. As of May 9, short interest stood at only 24.1%-more than most other companies but not nearly as high as 2020 or 2021-so that same pressure isn't there.
But as Colas mentions, other factors went into the meme-stock surge too. Over 10 million retail investors opened accounts in 2020, according to estimates. Collectively, retail investors accounted for around 19.5% of market activity in 2020. There was an appetite for trading that had taken hold of retail investors in 2020, and that helped set the scene for the memestock boom in the months to follow.
The 2024 GameStop bump hasn't quite seen those levels of retail participation yet. The average retail share of GME turnover was roughly 7% for the past five trading days, according to Vanda Research, which is lower than it was in 2021. Vanda points out that quant and hedge funds are better positioned to take advantage of retail surges than they were in 2021, which is a key difference between now and then.
However, that's not to say that retail investors have gone away. A key driver in GameStop's explosion in 2021 was the buzz online, and since 2021 there have been online communities of retail investors solely dedicated to talking about GameStop. Subreddits like r/GME and r/SuperStonk have 398,000 and 950,000 members, respectively, and rank in the 1% of most subscribed to subreddits. There, talk about GameStop never stopped, and posts frequently get thousands of upvotes or end up on Reddit's front page (r/all).
For further evidence of the influence that these online communities hold, just look at the DRS movement. GME's most enthusiastic retail investors, self-dubbed "apes," have coordinated efforts to directly register shares under their individual names instead of the names of their brokerages.
In today's investment landscape, directly registering shares under an individual's name is more often done by company insiders who own large portions of equity. But to the apes, DRS'ing GME is a sign of proud ownership. According to GameStop's March 26 10-K filing, around 75.3 million shares have been directly registered, representing about 25% of the company's shares outstanding.
Despite the stat that retail turnover registered roughly 7% in the past five trading days, data shows that there have been a few recent episodes of elevated retail turnover in the past year, pre-dating this week's boost.
Having this many retail investors waiting on the sidelines, primed to trade GME is something also fundamentally different from 2021. In 2024, GME already has the name brand recognition among retail traders, and many are willing to jump back in on the action - or maybe they never left. -- Marketwatch
