Entering text into the input field will update the search result below

GameStop - This Run-Up Looks More Sustainable, But It Is Not

Mar. 09, 2021 1:00 PM ETGameStop Corp. (GME)GAMR386 Comments
ValueMan profile picture


  • Current trading metrics do not point to a short squeeze or gamma squeeze and the failure to sell shares points to a lack of desire to innovate the business model.
  • GME is now trading at a ~13B market cap more ~450% higher than at the start of September when it had a .5B market cap.
  • I am purchasing puts on the ETF GAMR, which holds GME at ~15% of its holdings along with other “growth” oriented video game names that have sold off recently.

GameStop (NYSE:GME) has had considerable momentum since consolidating around $50. After a brief period of consolidation around ~$110-130, GME has broken out again with a ~40% move today (3/8/2021). With that move, GME is now trading at a ~13B market cap more ~450% higher than at the start of September when it had a .5B market cap. In this article I will lay out why this price level is unsustainable and why you should take profits if you have exposure and most likely remain on the sidelines if you do not. I am purchasing puts on the ETF GAMR, which holds GME at ~15% of its holdings along with other “growth” oriented video game names that have sold off in recent weeks. Not only does this ETF offer elevated exposure to GME, but it offers exposure to other assets that have downside momentum and limited correlation, thus offering a compelling trade without the elevated GME premium.

Source: Google Images

Important developments since the initial spike at the end of January

  • Ryan Cohen remains invested and has appointed a new Chief Technology Officer as well as two other executives to lead technological/e-commerce transformation.
  • “Roaring Kitty” one of the original WallStreetBets contributors’ buys ~$4Million in GME at ~$40 a share at the end of February.
  • CFO is pushed out at the end of February, marking the beginning of a shift toward new executive leadership.

Important Trading Metrics

As of 3/8/2021, GME has ~36.5% short interest according to Seeking Alpha, down from ~120% short interest in January. Short volume ratio, which is the ratio of shares traded short within a day, was at 26 as off the end of last week indicating that roughly a quarter of GME shares traded are short.

Source: Fintel.io

While this is a considerable portion by all

This article was written by

ValueMan profile picture
Investor and Active Equity ResearcherAll research and opinions are my own. I am not a licensed financial advisor, please consult one prior to acting on my thought process.Gather more SA insight through the website link below.

Analyst’s Disclosure: I am/we are short GAMR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

Comments (386)

Did the puts sell for a profit after the GME earnings release? What was the profit?
Bet that GME will announce an equity offering during earnings or before the market tomorrow. They would be fools to let a second chance to sell equity at a totally unrealistic valuation get away again.
Andrew Shapiro profile picture
@sepsis74 They are certainly going to do an offering but it won't come before the earnings. That is the disclosure they had to wait for.
@sepsis74 yes , they will but they will announce class B shares.... so class A will still be in the squeeze .... they are not fools to let this opportunity go away ...
@rev galerivs "Since January 2021, we have been evaluating whether to increase the size of the ATM Program and whether to potentially sell shares of our Class A Common Stock under the increased ATM Program during the course of fiscal 2021, primarily to fund the acceleration of our future transformation initiatives and general working capital needs. The timing and amount of sales under the ATM Program would depend on, among other factors, our capital needs and alternative sources and costs of capital available to us, market perceptions about us, and the then current trading price of our Class A Common Stock."
Keep buying puts. Not
Every single bear in here who just keeps spewing the typical trash that the MSM spews about Gamestop. Go ahead and short it today since earnings are next week and all of you are so confident it'll crash way below $200 since it's "overvalued". I would LOVE to see more margin calls and worthless puts on the short side, and than hear you slain bears cry that the market is manipulated.
Wez profile picture
"I would LOVE to see more margin calls and worthless puts on the short side, and than hear you slain bears cry that the market is manipulated."

Why such an emotional attachment to GME? Could it be driven by a long position you hope becomes profitable?
@DinoDaDon227 Only time will tell who will get mauled.
@Wez I don't need to "hope" it becomes profitable, I'm living the profits right now lol.

It's not an emotional attachment, it is just pity on the bears who make negative posts day after day for some odd reason considering the stock has outperformed what their whole portfolio does in a year in just like three months. It seems to get people extra mad that it's GME that is doing well and I find this really fascinating but know it means good things for the stocks future.
GME is a powder keg ready to blow and tank the entire market as hege funds liquidate positions nonstop to keep the lid on this thing. And yet day after day after DAY...the clueless bears just keep screaming it's "overvalued" not realizing this stock has nothing to do with fundamentals.

Go read about the bankruptcy jackpot that Hedge Funds thought they were hitting in 2020 when they thought GME would be insolvent soon and not pay back its debt maturing on 3/25/2021. Now that GME isn't going bankrupt, the MILLION of naked shorts by Hedge Funds doing anything they can to suppress this are out there.

If you think January was crazy, you havent seen anything yet.
@DinoDaDon227 This is delusional "DD" making its way from Reddsh*t to SA ... There's this notion of "phantom" "fake" "synthetic" "naked" shares that have been shorted ...
@papaValeant That's not delusional DD from Reddit. Naked shorts or synthetic shorts are a real thing that occur with other stocks as well, what is so hard to believe about that when you can find this info on google yourself? Nothing I bring here about GME is "conspiracies from r/WSB" it's just facts.
@DinoDaDon227 The only fact is that the short interest now sits at 14.85% or so as reported by S3 Partners and Ortex. Should people believe reputed companies whose sole business is to compute short interest and have Wall Street veterans working there or broke-a** college kids on Reddsh*t who come up with their dulusional DDs and have no idea of what they are talking about ?

It's all about the SI in this stock plus some buying for hedging by MMs - Other than anyone believing this is going to "moon" or $1K needs immediate mental health assistance
"Valueman" hahaha. Ok keep buying Kraft-Heinz and Kroger while other people print on GME. $2 -> $470 -> $40 -> $350 -> $207

So let me guess, the above price movement is just "momentum by reddit" haha? Another clueless author who's ignoring the powder keg that can potentially cripple the system since there's over 200M shares floating of a company where only 70M shares actually exist. GME is bigger than a stock, it could be the catalyst that exposes the shorts on wall street for deep fuckery that hasn't yet made it to the light. Keep shorting but don't say I didn't tell you so when your position is 1000% under water after the spring fully uncoils.
ValueMan profile picture
@DinoDaDon227 LOL This actually made me laugh out loud.. Next time read an article or do any due diligence on the author before responding like an angry clown.
endrow profile picture
@DinoDaDon227 Look man, I bought GME at $4 a year before the WSB crowd jumped aboard, but the one spreading lies is you there.

'Another clueless author who's ignoring the powder keg that can potentially cripple the system since there's over 200M shares floating of a company where only 70M shares actually exist.'
Where have you got this 'fact' from? There was over 100% of outstanding shares shorted in January, thats true. When a squeeze started to materialize a lot of brokers halted buying, only let people cover and sell for days. That was an a-hole thing to do, should be completely illegal and all of the people/companies who were in should be punished (with either jail, really freaking high penalties, anything). Thats when the outstanding shares shorted went from over 100% to ~30% and since then the shorts are constantly covering. Right now there are ~15% of outstanding shares shorted, you would also know that if you would follow both the official data (though it has a 10 day delay and only comes out biweekly), or if you would be a subscriber of S3Partners / Shortsight.

Do not come with 'but institutions/hedge funds have a lot of shares, it totals 100 million' <- yeah, you are looking a data that is 3 months old, before the January f*ckery by RobinHood and other brokers. The same could be said about shares held by ETF-s also. Oh, and GME shares shorted in ETF-s? It is also something that has to be reported in the biweekly official short report.

Now, I am not saying that a squeeze can not happen now. Now that short tutes and funds are mainly out, most of the remaining shorts are probably retail, which can be easily squeezed. It can happen if really great news come out, like a great ER or Ryan Cohen gets appointed as CEO. But do not expect a squeeze that goes to $69420.69, maybe $1000, IF it happens.

I am not against you. I am a GME holder, I still have 2500 shares (my biggest position in my portfolio right now) which I hold for long-term (and I also sell covered calls on most of them, the premium is unbelievably high). I also love WSB, its a great and fun site, but 99.9% of GME 'DD' are laughable and filled with misinformation there.
Mathieu Malecot profile picture
@endrow i mean i want a TSLA built GME rocket on the moon, so i am rooting for 1k. LF to conference call. it's clear very few still sniffing GME are interested in ownership as they show up for price swing smack talk, etc. there is a trade available to new arrivals but a tactic is not a strategy; wealth comes from ownership. BTW, any links/ more thoughts on BBAR?
Last week I had been looking for a way to express my bearish opinion on GME. I, finally, did it via bear Call Spread 400/500. Now, this is not exactly a defined risk trade. I didn't want to lose 10k on each position. So, this is how I reasoned

1. My stop loss would be 350 - recent high. If the closing price of a day was going to be around that, then I would look to close out. After today's action, I have lowered the SL to today's high.

2. If price retraces to daily EMA at around 150, I will close out the position at profit.

3. This Friday XRT rebalances it's portfolio. Combined with other ETFs that would be a sale of over 500k shares. If, by EOD Friday, the price was still around $250, that would have meant that it was a non event, then again, I would have just closed out. I believe most smart money would exit before the rebalance.

I am encouraged by today's action. I will keep lowering my SL after each down day.

GAMR puts are very illiquid and the bid-ask is very wide. I was watching the bid-ask in the afternoon today when GME was tanking. It would have been hard to take profits from those puts. Good luck!
Mathieu Malecot profile picture
@vishalct i prefer selling april puts @40$, but this isn't a bad spread just be nimble on thurs
@Mathieu Malecot
I have been selling the same puts too.
But, I wanted to do something on the short side as well. Last week, I read thru a lot of reddit posts. There is a lot of misinformation there. Not sure what could be the agenda of people who are feeding all that crap. Anyways, I thought this has to end badly for the herd. So, I put this on.
AnonB profile picture
@vishalct What misinformation are you talking about, can you be specific?
so if you think it is overvalued short it... do not sell wisdom if you do not have a position.... stand behind your words... and short it... you will make the $$$
@rev galerivs I think it is highly overvalued and should be shorted.
A 50% corection from these high levels of $264 is on the cards.
@A.Jay Please short, the rocket needs more fuel.

Honestly, advising people to short a stock that might get squooze 10x or more is highly irresponsible.

I am long and I warn people to not buy if they do not do proper research beforehand. Asking people to short is asking people to commit suicide. Buy puts if you are bearish.
@A.Jay thanks for the hot take.
So the thesis is dont buy and dont sell.
Platypussy profile picture
This was a nerve-wracking Friday for the average short. At one point GME was +15% but then cooler heads prevailed and by the close it was +1.5%

Just a cursory look at the open interest on OTM calls expiring today I saw over 80,000 contracts between 300 - 800 but I wasn't looking at every strike. Does anyone know how to get the total? I'd assume it was over 200,000 including all strikes.

Contracts to buy 20 million shares. And how much did they pay to play this zero-sum game? Looking at next week's expirations the average price looks to be about 20/contract for the range of OTM calls.

Does this mean that it costs $20 x 20m, or $400,000,000 per week, to try to engineer a gamma squeeze?? Asking for a friend.
@Platypussy those options were much cheaper 3 weeks ago...
Platypussy profile picture
@2 Scoops And that's irrelevant because whoever owned them last week was paying nose-bleed insane prices - the MM's answer to gamma squeezes - until they went to zero.
Gunne profile picture
Like the shorts are the smart ones, treadmilling all the way to the moon, + i don't even trust those SI numbers either.

“This has not been a profitable trading week for GME short sellers, after being down -$1.36 billion on Monday and Tuesday,” Dusaniwsky said. “[Wednesday’s] +7% price move added another -$202 million in additional mark-to-market losses.”

Good luck on your puts. Make sure it is long dated though.
Personally I agree with the analysis that GME is way overpriced. Their earnings have only been going down and have been negative for a while. Stores are also closing. In my area I had 3 stores within a 5 mile radius or so has gone down to 1 in the last 2 years including a major mall store closing.

Some folks including WSB are very positive especially on a bigger focus on e-commerce. Sure short-term this could help a bit, but I don't see what place there is left for Gamestop in the market. Game distribution is becoming more and more digital especially during this new console cycle. More digital purchases directly from Microsoft, Nintendo and Sony. Also a bigger focus on subscriptions such as Game pass. Also Fortnite and other games are F2P and are not store bought.

Due to the digital move I just see their business model drying up. Sure some users want discs or cartridges, but this will go down in favor of convenience. It also means their lucrative second hand game business is going down as well.

Call me pessimistic but I do see Gamestop going out of business in the next 5 to 10 years. I'm not sure what can save them as they are not in control of their own destiny. They just sell other companies their products,who are shifting more business away from them. The only thing which could perhaps save them is to buy game studios or some online game store e.g. GoG.
Gunne profile picture
=> Stores are also closing. In my area I had 3 stores within a 5 mile radius or so has gone down to 1 in the last 2 years including a major mall store closing.

That's RCs' business instinct, right?
What's the point of having 3 stores within a 5 mile radius, anyway?

I call it 'unnecessary cost' cutting.
Better to have a smaller, leaner, more profitable business than to keep doing the same thing with an outcome that could have been worse for everyone involved. (Employees, shareholders included)
Gunne profile picture

1) Start every day with a task completed => Hold the line
2) Find Someone to help you help you through life=> Deep F*cking Value
3) Respect everyone=> Except the rotten ones
4) Life is not always fair, move forward=> Trading halted
5) Don't be afraid to fail often=> When shorts attack
6) Take risk=> Buy the dip
7) Step up when times are toughest=> Keith Gill at the hearings
8) Face down the bullies=> Hedgies and the propaganda machine
9) Lift up the downtrodden=> Retail investors
10) Never give up=> Never ever.
Not sure where the price will go as it might go up to the moon like $500 per share in a week but no positive earning at the last earning report, so might be good to take profit when it reaches $300 while can’t compare this company to Tesla.
Hugee profile picture
11 Mar. 2021
Just to give a comparison, ceconomy which is Europe’s largest electronics retailer with huge well designed shops and several state of the art modern apps for games, graphics cards etc trades at an EV of 2bn
@schulien ,

Thanks for pointing out a reasonably comparable enterprise. I used Google a bit:
12 billion in gross revenue.
12 billion market cap.
Looks like a quarter billion or so in profit.

GME, by comparison:
5 billion in gross revenue TTM, declining for some years.
18 billion market cap.
A quarter billion or so in losses.

I wouldn't buy it.
Hugee profile picture
11 Mar. 2021
@schulien Hey friend, sure many of us understand that from a classical stock analysis point of view Gamestop is an outlier. I don't think you will find many people who will argue with you on the topic.

The point here is that GME is anything but a classical scenario at the moment for multiple reasons:

1. The recent short squeeze and resulting polarizing effect it has had on retail. This means, it's retail investors may not exhibit a behaviour that you would define as rational market behaviour.

2. The resilient upward trend of the stock in recent weeks: First attributed to the short-squeeze, analysts (see Forbes articles) attribute the new upswing to strong forces manifesting themselves among the retail investors who contribute, in an indirect way, in driving the stock towards a Gama squeeze.

3. Ryan Cohen and the Brand turn-around play: Gamestop is a very established brand that could fairly easily recenter around an effective digital-first strategy. unlike your example, Gamestop is already a Global Brand and, one could argue, touches more than a company like the one you cite.

Frankly, both sides of a play on GME are risky, however the volatility should be a good enough indicator of this risk.

On a partisan note, I believe that the bear case bares (no pun intended) more risk than the bull case given the recent losses inflicted to seasoned Hedge Funds... in other words if some Hedge Funds lost up to 53% on their short play on GME, what makes anyone believe they will have more success in shorting it in the near future?
@Hugee ,

I'm pretty sure the right lesson isn't "don't short crappy companies," it's "don't short 150% of the float, even when it's a crappy company."
GME has been attacked in so many ways. Trading halted by many brokerage firms. A temporary ban on buying the stock by some. Short attacks. Some even want government intervention.
Yet GME stands firm. Just maybe this is the dawn of a new day. As the WS pros have been consistently wrong. I think many are underestimating the belief in GME by a worldwide group of buyers. Moreover, I would opine there are a lot more shorts than advertised. I’ve got a few shares and if I win I win. If I lose I lose, but I’m not selling. I like the stock and the direction it appears to be going.
Could you stick to Reddit? The longs have been protected by law at least since financial crisis by uptick rule, not the shorts. And if robinhood would‘ve blown up also by a mob, I guess it wouldn’t have been to the mob‘s benefit either.

As to the company, should you be interested in what you actually buy, ie a voting right and right for a share of net income, I per today just see them closing stores and a web site or app which has room to grow, compared to steam or so, to say the least. Good luck!
@RomeVVV Please keep this nonsense to Reddshit. Please.
@papaValeant What determines the price of a stock? Fundamentals play a role in how people might view it but ultimately it comes down to DEMAND for the stock. The market determines the price. If the market says GME is worth $260(closing price today) then its worth $260.

TSLA was $800s then $500s, now $699. Which price is correct and why such variance?GME is a dying brick and mortar with ecommerce, subscription and esports aspirations. But if enough people "believe" in the company or just "like the stock", it doesn't take much to reduce liquidity and as larger investors and big money jumps in the rise is inevitable.

Eventually it will come back to reality but who is to say when and at what price that is.
Think Long Term profile picture
I smell a bankruptcy filing coming...
@Think Long Term For hedge funds who went short and lost their asses?
ValueMan profile picture
@Think Long Term Bankruptcy is off the table, they have plenty of cash on hand and could sell shares to raise more at any time.

It was never on the table to start... AMC is the smell you might be picking up
@Think Long Term doesnt sound like you are living up to your user name. cheers for shilling for HF
Pts117 profile picture
GME needs consistent and stable earnings of about ~$2B annually to justify the current price. That is 8 times their prior 5 years earnings COMBINED! Sure, they can transform their business and build a profitable enterprise... but there is a lot of risk at this valuation.
Think Long Term profile picture
this casino gambling is making our whole market look like a joke....SEC has to step in and put a stop to a $2 company trading at $260..I imagine they are searching for a way to do it too...anyone paying this much for this crap company deserves to lose their money
endrow profile picture
@Think Long Term $2 company? They have $12/share cash on hand and $6/share net cash. They also make $6-7 billion a year, 30% of it already comes from e-commerce, and have 60 million loyal PowerUp Rewards members. They are a cyclical company just at the start of the biggest console cycle ever with a billionaire e-commerce entrepreneur who just bought himself into the leadership.

Roblox is trading at $40 billion valuation, its a company selling a 15 year old game. Their revenue was $700 million for the first 9 months of 2020, and they are pumping up their losses faster than their revenues. GME is trading at half the market cap with 10x the revenue.

Now, I am not saying that its not overvalued. It is, its worth probably $60-80 fundamentally right now (though thats still only the average retail P/S valuation). But there are a lot of companies out there who are way more overvalued. If I'd be blindfolded and had to throw a dart to a random tech company then I am 95% sure that it would be way more overvalued than GME even at these elevated prices by any fundamental metric.

With all due respect, but I think you’re messing up the numbers you want to relate to each other a bit, quarterly, yearly, earnings, free cashflow to firm/ equity etc. Roblox surely is extremely expensive, but they per today have a cool concept and shown actual growth quite a few years now. 

I‘m not saying it’s impossible for GME to have a great unique idea as well, but very few in retail had it successfully (and Roblox being a software company not retailer), and per today we know they want to go online like my neighbouring pottery woman of age 70 ;)

Fundamentally it’s worth an option premium, ie 2-5. Goodwill towards Cohen, turning business around and stop bleeding cash and make normal returns, say up to 20, creating something new and getting a competitive advantage for 2-3 years till ancient slow movers such as Amazon or Steam wake up, agree on 50.
Pts117 profile picture
it is time to short this...

Today players on purpose limited themselves by yesterday‘s halts. Tomorrow will be more interesting, and could of course go in both directions the days till earnings, quarterly options expiration etc. I for myself started to short one share today 😁 And will double on every 10% movement, irrespective direction. Rather than crazy options on an option called GME share..
Pts117 profile picture

My broker has some pretty aggressive margin requirements for short shares and short calls, as I'm sure most of them do... so I wonder how much the retail bros are going to be able to YOLO the stock. The only reason I went short with a very small position is because it looks like brokers are limiting risk on both sides of the trade which should prevent some of the craziness... we shall see.

Good point. Experienced the same on my IKBR account how the margin for GME went exponential relative to share movement. Probably understandable though
Disagree with this article? Submit your own. To report a factual error in this article, . Your feedback matters to us!
To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.