GameStop shares jump another 50%, shake off analyst downgrade as epic short squeeze continues

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Copies of ‘Grand Theft Auto V’ on display for sale at a GameStop store in Peru, Illinois.

Daniel Acker | Bloomberg | Getty Images

The explosive rally in GameStop is showing no signs of slowing down as retail investors talking in chat rooms and hedge funds rushing to cover their short bets against the stock pushed it above $90 a share in early trading Monday.

Shares of the video game company soared another 50% in premarket trading on Monday, following a 51% advance in the previous session in heavy trading. GameStop has rallied 245% in January alone, skyrocketing to $65 a share from just about $6 four months ago.

Monday’s premarket jump came despite a double-downgrade from Telsey Advisory Group. The Wall Street firm slashed its rating on GameStop to underperform from outperform, saying there’s a disconnect between fundamentals and valuation.

“The sudden, sharp surge in GameStop’s share price and valuation likely has been fueled by a short squeeze, given the high short interest, and, to a lesser degree, speculation by retail investors on forecasts for the new gaming cycle and the involvement of activist RC Ventures,” Telsey analyst Joseph Feldman said in the note on Monday.

“We believe the current share price and valuation levels are not sustainable, and we expect the shares to return to a more normal/fair valuation driven by the fundamentals,” the firm added.

GameStop, a brick-and-mortar video game retailer, has been a popular short target on Wall Street. In fact, more than 138% of its float shares had been borrowed and sold short, the single most shorted name in the U.S. stock market, according to FactSet citing the latest filings.

On Jan. 11, news broke that activist investor and Chewy co-founder and former CEO Ryan Cohen is joining GameStop’s board. The stock jumped higher on the announcement on hopes Cohen would drive a change in strategy at the retailer. The jump triggered a rush of short covering from hedge funds and traders who bet against the stock. When a shorted stock trades sharply higher, short sellers would have to buy back shares to cut their losses, which fuels the rally further.

Meanwhile, GameStop has also been a hot topic in online chat rooms, Twitter and Reddit as some retail investors and day traders aim to push shares higher and squeeze out short sellers.

One post on the popular “wallstreetbets” Reddit Monday morning said “IM NOT SELLING THIS UNTIL AT LEAST $1000+ GME.” And this post has already more than 1,100 comments.

Citron Research, a vocal GameStop short seller, said Friday it would not be commenting on GameStop any longer because of attacks from the “angry mob” that owns the stock. Citron said there were too many people hacking Citron’s twitter account on Friday and canceled a live stream where it was going a detail five reasons why the stock will go back to $20.

Telsey’s 12-month price target is $33. The average price target of analysts according to FactSet is just $12.39, far below where it was trading in premarket Monday.

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