March 22 (Reuters) – Meme stock GameStop Corp ( GME.N ) jumped nearly 50% in early trading on Wednesday as the video game retailer’s first profitable quarter in two years squeezed bearish investors and sparked a rise in other stocks popular with retail traders.
AMC Entertainment Holdings Inc ( AMC.N ) gained 5.3%, while Bed Bath & Beyond ( BBBY.O ) rose 7.5%. Both shares, along with GameStop, were at the heart of a meme stocks frenzy in 2021 fueled by small investors interacting on social media.
Among other stocks popular with retail investors, Koss Corp (KOSS.O) climbed 9.5%, while the Roundhill MEME ETF (MEME.P) rose 4.2%.
Grapevine, Texas-based GameStop, in which billionaire investor Ryan Cohen holds a majority stake and serves as chairman, reported a 16% drop in costs in the quarter and surprised Wall Street analysts with profit .
Investors saw it as an early sign of a turnaround for GameStop, whose core business of selling new and pre-owned videogame discs is shrinking as consumers shift to downloading games digitally or streaming.
GameStop is the most popular stock on the investor-focused social media site stocktwits.com.
The stock hit its highest level in more than four months with 12.7 million shares changing hands in the first 15 minutes of trading, among the top five most traded US stocks.
“Fortunately, this round is not due to meme investors, but an actual tangible main event,” said David Wagner, portfolio manager at Aptus Capital Advisors.
“Short interest has been a driver in this stock for a long time and that will be the case today.”
PASSING A SHORT BET
When there is a rush of demand from short sellers looking to exit their bearish bets in the midst of a stock’s price rise, it pushes prices higher, resulting in a short squeeze.
Carvana Co(CVNA.N), another stock with high short interest, jumped 20% after the used-car retailer said it expected a smaller core loss in the current quarter.
Short sellers betting against GameStop have lost $610 million since the start of the week, analytics firm Ortex estimated, adding that about 24% of GameStop’s publicly available shares are in short positions .
Wedbush raised its price target on GameStop shares to $6.50 from $5.30 after the results, as the brokerage believes the lower cost structure reduces the risk of continued losses.
However, “in the long term, the company cannot save the road to prosperity,” said Wedbush analyst Michael Pachter.
“I’m going to bet my oldest son that this company is going to be irrelevant for years to come,” said Wagner, who has no position in GameStop.
Reporting by Medha Singh in Bengaluru; Editing by Maju Samuel and Saumyadeb Chakrabarty
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