The saga is set to take another turn on Friday when shares begin trading following the company’s four-for-one stock split.
Everyone who was one
shareholders at the close of trading on Monday will receive an additional three shares. Investors who bought
shares between Tuesday and Thursday will receive their additional shares from the seller.
On Friday, GameStop stock will trade on a split-adjusted basis, meaning one share will be worth a quarter of what a share was worth before the split. GameStop stock closed at $153.47 on Thursday, so the price would be $38.37 on a split-adjusted basis.
Share splits do not change anything fundamentally about an underlying company because they are similar to cutting the same pie into smaller slices.
That said, some investors pile in ahead of stock splits because stocks that split tend to outperform the market. It’s probably a case of the tail wagging the dog, as stocks with strong momentum are more likely to split than market followers.
GameStop stock is up 3.7% in 2022, though it’s down 14% from where it traded 12 months ago. The
is down about 16% so far this year, which puts it about 8% below its level at this point in 2021.
Even on a split-adjusted basis, the stock would be well above where most analysts expected GameStop to trade back in 2020 — and even 2021. The stock traded for less than $3 early in the pandemic, but jumped in August 2020 when
co-founder Ryan Cohen unveiled a stake. He joined the board in January 2021, and started a flurry of purchases among private investors who exchanged tips about the stock on Reddit. That price surge forced investors who had bet against the stock to close their positions in an epic squeeze that choked some hedge funds.
GameStop stock closed as high as $347.51.
Cohen became chairman in June 2021, when the company shook up its C-suite with executives with e-commerce experience. Under CEO Matt Furlong, the company has invested heavily in turning itself around.
GameStop had struggled for years as consumers shifted from physical discs to online games and digital downloads. Now it is betting heavily on extended offers such as PC accessories and TVs. It also launched a marketplace for non-fungible tokens that it hopes will better position GameStop for the next era of gaming, though analysts are skeptical that it could turn the company’s fortunes around.
The management said in the spring that they wanted to split the stock, and in June the shareholders approved an increase in the authorized number of shares to one billion from 300 million. GameStop announced the details of the split this month.
The company remains popular in some corners of Reddit. Some users believe that another dramatic increase may be on the way. On the flip side, the stock still has more than its fair share of short sellers, who sell borrowed stock to bet on a bigger decline.
About 13.5 million pre-dividend shares were recently sold short, or 21.6% of shares available for trading, according to data from short-selling research firm S3 Partners. The amount of shares shorted will change after the split, but the dollar amount, $2.15 billion, will remain unchanged, according to S3 Partners director Matthew Unterman.
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