GAMESTOP’S share price has surged again as the retailer announced it’s raised $551million in stock sales.
Its share price is now up by more than 900% this year alone – from $17.25 on January 4 to $168.93 today, ahead of US markets opening.
Yesterday, GameStop said it’s sold 3.5million extra shares in order to help speed up its e-commerce transformation.
The sale, which was first announced on April 5, was viewed as a way to make the most of the head-turning rally that made Wall Street history.
It caused professional hedge funds, which had bet against the business, to lose billions of dollars.
Risks of buying shares
INVESTING and buying shares can be risky and should not be entered into without knowing what’s at stake.
It’s essentially betting that a company’s value will go up but it’s not guaranteed. You should only invest what you can afford to lose.
The price of shares can go up or down, depending on whether people change their minds about how well a company is performing.
If share prices fall, the value of your investment falls too and you could end up out of pocket.
Holding shares in just one company is especially risky, as you could end up losing some or all of your money if it gets into difficulties.
Diversifying your investments – buying shares across a number of different companies – can spread your risk.
Investing long term – for more than five years – will also reduce your risk as it gives you time to ride out the lows.
The Reddit traders teamed up to “squeeze short-sellers” by quickly buying up GameStop stock, which drove up the share price.
This meant short sellers were forced to buy more stock to cover their losses. This, in turn, pushed up the share price even further.
In simple terms, short selling is when professional investors borrow shares of stock to sell, and then buy them back at a lower price.
Essentially, they are betting that the stocks will drop in value so they can pocket the profit when they hand them back to the company they borrowed them from.
They rely on the company failing, making it a risky way of raising cash – any positive news could see shares rise and cause them to make a loss.
At its peak in January, GameStop’s share price was sitting at $347.51.
It then dived in February as the company announced its chief financial officer Jim Bell would resign, only to start increasing again in March.
Last week, GameStop also announced its chief executive George Sherman will step down on July 31, giving top shareholder Ryan Cohen more control.
If you plan to invest, keep in mind it’s not a guaranteed way to make money, so make sure you know the risks and understand what you’re investing in.
Also make sure you can afford to lose the money.
Russ Mould, investment director at AJ Bell, previously pointed out that GameStop investors need to find a buyer to lock in their profit as its share price surged to a record high earlier this year.
He told The Sun: “Who is going to do that, in the knowledge that the share price has been wilfully ramped, there is hot money looking for an exit and the valuation looks lofty for a loss-making retailer?
“Booking a profit might not turn out to be as easy as it looks, at least anywhere near the share price peaks.”
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In February, trading platform Robinhood faced lawsuis for blocking GameStop trading as shares plummeted.
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Meanwhile, Netflix is set to make a movie about the GameStop market saga and Reddit army starring Noah Centineo, according to reports.