GameStop – The Franchise, The Short Squeeze!

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asked about 2 years ago

GameStop, the world’s largest gaming franchise, went sky-high recently with one of the most surprizing short squeezes in trading history. Here’s the short story on GameStop’s short squeeze.

GameStop the Franchise

GameStop is the world’s largest gaming franchise. Selling video games, gaming merchandise and some consumer electronic products, GameStop has more than 5,500 gaming stores around the globe. Established in 1984, GameStop has had to fight against the competition of online gaming stores for the past decade or so now.

The early 2000s until approximately 2015 saw GameStop grow significantly, with a number of acquisitions that included EB Games, Rhino Video Games, Micromania and Free Record Shop to name just a few. These acquisitions firmly planted GameStop as the number one game store, not just in the United States, but around the world.

Two thousand sixteen to 2020 saw GameStop struggle with a drop in retail sales, the release of X Box and PlayStation online software as well as some negative press throughout the COVID-19 pandemic.

GameStop has been a public company with shares on the New York Stock Exchange (NYSE: GME) since 1988. And here is where GameStop shot to fame recently, with a never-before seen increase in their share price.

The Short Squeeze on GameStop

January of this year saw GameStop rocket to notoriety in the news cycle after it experienced a short squeeze where its share price saw a 1,500 percent increase within a two-week period. GameStop’s share price rose from approximately $5 a share to over $480 a share.

A short squeeze, in very basic terms, is where investors buy up shares in a short period of time to force, or “squeeze” short position investors into higher-priced shares. When a large number of short sellers close out their position on a stock in large numbers and in a short period of time, it creates buying pressure on the market.

The interesting thing about this short squeeze was that it was driven predominantly by a social media influence and a large group of Self-directed investors (SDIs).

SDIs are individual investors who do not follow the trend of professional traders and hedge funds. This group of investors tend to invest in something they have a more personal interest in or what is socially trending. Access to internet-based research and the increase in intuitive trading platforms that offer access to anyone has seen this group of investors increase over the past 10 years.

For the GameStop short squeeze, it was driven predominantly by the Reddit community of investors known as r/wallstreetbets. This was further fuelled by a tweet from Elon Musk with the tweet “Gamestonk!” and a link to the Reddit r/wallstreetbets community.

A Short Squeeze and Franchising

While the excitement and hysteria over GameStop has now subsided, and its share price is down to a more realistic level, it has left some questioning what this might mean for other franchises.

Derek Cafferata, franchise expert and CEO of All State Franchise Finders, feels this is not something to be concerned about for other franchising companies. When a company has a high short interest percentage, it runs the risk of a short squeeze. For GameStop, their short interest was almost 90 percent. Those franchises listed in the Franchise Times watchlist do not have this height of short interest. In fact, the franchise with the highest short interest is Regis Corporation, with a short interest of approximately 13 percent. So, there is low volatility, meaning little chance of a GameStop short squeeze repeat.

All State Franchise Finders for Franchising Advice

Franchise experts, All State Franchise Finders, offer sound advice to those looking to franchise their company or buy into an established franchise group. With more than 30 years’ experience, Derek Cafferata and his team are ready to answer your franchise questions. For more information, contact All State Franchise Finders on 1-800-544-2161 or visit allstateff.com today.