Shares on GameStop plummeted 27 percent Thursday after the video game retailer announced it intended to issue new shares and revealed that the U.S. Securities and Exchange Commission was investigating trading activities in its stock.
The company, which was one of the first to become a so-called meme stock favored by retailers in January, said after markets closed Wednesday that the SEC had contacted its staff on May 26 to assist in an investigation. on their escort activity. GameStop said it did not expect the investigation to “have a negative impact,” and that it plans to “cooperate fully with the SEC in this matter.”
The seller also said he plans to file a registration with the SEC for a maximum of 5m additional shares, which, if issued, would dilute the value of the shares of current investors.
“When diluted for stocks, your stock price should go down, so in a way that’s a certain sense of normalcy. Other than that, GameStop trades pixie powder and dreams,” said Anthony Chukumba, CEO of Loop Capital, which covers the gaming industry.
“The stock is completely disconnected from the fundamentals and that hasn’t changed. So, everything GameStop reported yesterday, it didn’t make any difference for Reddit traders.”
Shares in GameStop, as well as a handful of other retail-friendly stocks, have rebounded sharply in the past two weeks, as amateur investors have renewed their enthusiasm for trading from earlier in the year. At the end of January retailers organized themselves on online messaging panels and managed to cause losses to the special funds that are betting against GameStop by pushing their shares.
But industry experts note that the speed of recent fluctuations in companies ’valuations of retail favors suggests that heavier investors are also now participating alongside retail investors.
“Retail can’t cause these strong movements alone,” Chukumba said. “Hedge funds are not idiots. There is a group that understands this game and how to exploit it.”
Despite Thursday’s decline, chats on GameStop on Reddit’s message boards have been quiet compared to other popular stocks, according to data providers. Again, that suggests that retail investors may not be active in this latest drop.
The company registered at the bottom of the top 10 most discussed stocks on the platform, according to data provider BreakoutPoint. “It’s surprisingly small. They’re not so excited, they’re not so angry, ”said Ivan Cosovic, founder of BreakoutPoint.
Retail activity had cooled in the months since GameStop shares and other companies jumped earlier, but have pushed higher in recent weeks, led by movie chain AMC Entertainment. Last Wednesday, shares in AMC increased by 95 percent.
On Thursday, AMC fell even more than 13% in New York. Its stock has been up more than 2,000 percent since the beginning of the year. GameStop has been up more than 1.177 percent since the beginning of the year.
So far, the resurgence of the retail trading craze has not infected the wider stock markets. The blue-chip S&P 500 and Nasdaq Composite heavy technology closed 0.5% and 0.8%, respectively, in New York, after trading in a tight range for past sessions.
“There have been these small mini-fires all over the forest, but they haven’t led to a wider forest fire so far,” said Maneesh Deshpande, head of U.S. action strategy at Barclays. “It’s disturbing, but it wasn’t a macro-event.”