Stimulus checks unlikely to spur another GameStop mania, says BofA

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The $1,400 stimulus checks are hitting Americans’ bank accounts, but Bank of America doesn’t expect the fiscal aid to spur speculative trading in GameStop’s stock.

Since the GameStop trading mania that took place in January, the Wall Street firm’s predictive analytics team has been monitoring non-fundamental factors in in the gaming retailer’s stock.

Bank of America screened the number of conversations on Reddit relating to GameStop trading volumes and short interest, which are closely correlated with trading increases in the retailer’s shares.

More recently, the bank started monitoring Reddit discussions regarding the stimulus checks. The firm concluded that going forward, it doesn’t believe a repeat of GameStop’s epic rise and fall will occur due to the added cash to consumers’ wallets.

“Conservations involving stimulus appear to have peaked and GME shares declined over the past few days,” Bank of America data analytics research analyst Curtis Nagle told clients.

“The number of recent conversations including both GME and stimulus is low. GME trading volumes are also steadily declining and short interest is down materially,” he added.

In January, an epic short squeeze in GameStop’s stock shocked Wall Street and drew attention to an emerging class of retail investors on social media platforms.

GameStop’s share price skyrocketed to $483 per share, and subsequently lost 90% of its value. The controversy drew the attention of Wall Street and Washington.

Now, as a part of a $1.9 trillion stimulus package, millions of American are getting $1,400 direct payments for Covid-19 relief. Data showed that the last round of stimulus checks in 2020 were sometimes used to trade securities, but Bank of America expects GameStop to remain largely a story of the past.

The stock is up 98% in March, but the trading volumes are only a fraction of what they were in January.

GameStop is reporting earnings on Tuesday, March 23. Bank of America expects an underwhelming quarter given previously announced holiday sales results that were very disappointing.

“GME expects to achieve ‘profitability’ in the quarter which is not exactly a high bar given comp sales will be positive and 4Q typically makes up the majority of GME’s earnings in the year,” said Nagel.

Bank of America said GameStop’s stock has traded positively on new developments for the company in the past five months like a digital revenue sharing arrangement with Microsoft, the appointment of Chewy founder Ryan Cohen on GameStop’s board and a focus on GameStop’s technology and e-commerce transition.

“These are all in theory positives for GME but no detail has yet been given on the cost, timeline, strategic points and impact to earnings from a turnaround plan,” added Nagel.

— with reporting from CNBC’s Michael Bloom.