GameStop shares soared more than 80% on Monday, triggering multiple trading halts due to volatility, after "Roaring Kitty," the man credited with inspiring the epic short squeeze of 2021, resurfaced online for the first time in nearly three years.
Keith Gill, also known as "DeepF------Value" on Reddit, posted a picture on X (formerly Twitter) of a video gamer leaning forward on their chair, indicating a serious approach to the game. The post, Gill's first on the platform or Reddit since 2021, has garnered significant attention, amassing 63,000 likes in just 13 hours.
Gill, a former marketer for Massachusetts Mutual Life Insurance, drew an army of day traders who rallied behind GameStop and other "meme stocks" between 2020 and 2021. The frenzy involved individual investors targeting short sellers and hedge funds who were pessimistic about the outlook for these companies, forcing them to cover their short positions and driving up the price of the target stocks. Currently, the short position in GameStop shares amounts to more than 24% of its freely available shares, known as the float.
The poster child of the GameStop mania was hedge fund Melvin Capital, which suffered significant losses due to its heavy short position in the company. The fund received close to $3 billion in support from Ken Griffin's Citadel and Point72 to backstop its finances. The surge in GameStop's stock price, which rose from as little as $3 to above $120 a share (split-adjusted) in early 2021, prompted brokerages like Robinhood to limit trading in heavily shorted stocks. This decision led to a class-action lawsuit, which was ultimately dismissed in August 2023.
The volatility surrounding GameStop and other meme stocks sparked a series of congressional hearings focused on brokers' practices and the gamification of retail trading. Leaders from Robinhood, Melvin Capital, Reddit, Citadel, and Gill himself testified during these hearings. The entire episode even inspired the 2023 movie "Dumb Money," with Paul Dano portraying Gill.
While interest from individual investors eventually faded, causing GameStop's stock to collapse along with other meme stocks, the recent surge in the company's shares may have rekindled Gill's interest. GameStop has soared 57% so far in May, closing Friday at $17.46, despite hitting a three-year low of $9.95 last month.
However, GameStop's fundamental business remains discouraging, as evidenced by its most recent earnings report. In late March, the company announced job cuts to reduce costs and reported lower fourth-quarter revenue amid rising competition from e-commerce-based competitors. GameStop posted revenue of $1.79 billion for the fiscal fourth quarter, compared to $2.23 billion in the same quarter a year earlier.
Art Hogan, chief market strategist at B Riley Wealth, cautioned against characterizing the participants in this phenomenon as investors, stating, "There's no fundamental change in any of the companies that are popularized in this phenomenon." Thomas Hayes, chairman at Great Hill Capital LLC, added, "It's unlikely you're going to see a repeat of meme stock mania for any sustained period of time because the conditions are different. It was a point in time when you had a bunch of people stuck at home with free money and nothing to do and that's no longer the case."
