Gamestop rout erases US$27B in value

Gamestop Corp.’s rally came to a screeching halt this week as the shares headed for their biggest one-day loss on record, erasing us$27 billion in market value from their high.

The stock, which has been the poster child for redditors looking to squeeze short sellers, fell as much as 64 per cent Tuesday, and was trading near us$100, the lowest in a week. Several other reddit favourites — including movie-theatre chain AMC entertainment Holdings Inc. and clothing retailer express Inc. — also tumbled.

Gamestop’s retreat has coincided with a sharp reduction in short interest after bearish investors appeared to cover their positions. That has loosened a squeeze on the stock caused by day traders who used reddit forums to tout and bid up out-of-favour stocks that also included American Airlines Group Inc. and blackberry Ltd.

“With Gamestop, if you trade now you are presumably betting on what happens tomorrow or next week,” said Craig birk, chief investment officer at Personal Capital. “There are online pleas to buy and hold, but this does not feel like a buy and hold situation.”

Gamestop recouped some of its earlier losses and was trading at us$98 as of 3 p.m. in New york, down 57 per cent after five volatility halts. Gamestop has now given up more than three-quarters of the spectacular gains that were fuelled by last month’s attack on short sellers.

AMC trimmed losses to 42 per cent and at us$7.70 is more than 50 per cent lower than last week’s intraday high. express Inc. declined 36 per cent and has lost more than three-quarters of its value since peaking on Wednesday.

even with Gamestop’s pullback, the Grapevine, Texas-based video-game retailer is still up more than 400 per cent year-to-date.

“Once you get through some of this initial speculation, the question becomes what are the fundamentals of the company,” said Chad Oviatt, director of investment management at Huntington Private bank. “And when you get back to it, the fundamentals will eventually drive stock prices and that’s where you’ll see a lot of these names pull back to more reasonable price levels.”

billionaire entrepreneur Mark Cuban told reddit investors on Tuesday morning to hold on to their Gamestop stocks if they could afford it.

“If you can afford to hold the stock, you hold. I don’t own it, but that’s what I would do,” the 62-year-old wrote on reddit.

Tuesday’s drop came despite a loosening of restrictions on the amount of shares investors can buy using robinhood Markets Inc. On Monday afternoon, the popular trading app started allowing users to purchase up to 20 shares of Gamestop, up from a cap of one before the market opened.