One Analyst Believes That GameStop’s Stock Fluctuations Could Save It From Bankruptcy

Although GameStop’s recent stock price surge has nothing to do with its financial health, it could give them the chance to avoid bankruptcy.

One market expert believes that the recent spike in trading and subsequent swings of GameStop’s stock prices could help prevent bankruptcy. Despite the retailer’s recent losses, over 800 GameStop stores are set to close in 2019/2020 due to bankruptcy. However, WallStreetBets has made the company more valuable than ever, thanks to their concerted efforts.

Subreddit members noticed that hedge funds were taking a large short position towards 2020 on certain companies, including GameStop. The Redditors bought shares of GameStop stock in an attempt to “short squeeze” these hedge funds.

This was despite no changes to the company’s financial outlook. In the hope of repurchasing their equities at a lower price, these hedge funds had sold and borrowed equities. The stock’s price rose as more people bought it, forcing hedge funds to buy it at a higher price to repay their loans.

Although it was initially only available to select Redditors, the stock’s price soared after Elon Musk supported the action via Twitter. Hedge funds will be unable to purchase the stock back, causing the price to rise even further and giving Redditors more money invested in GameStop. 

AlthoughRedditorsis may seem like a genuine effort to make quick cash and cause havoc among hedge fund managers, and it could save the gaming retailer.

According to DailyFX analyst Peter Hanks, this short squeeze could allow GameStop to raise more capital through offering shares. This would give GME the chance to stave off bankruptcy or implement some changes to its operations that its early buyers were holding on to as bullish catalysts.

Ironically, hedge funds betting against GameStop may help save the company’s failing business model. Robinhood and other brokers have already stopped trading due to the sudden price rise, prohibiting customers from buying more GME shares. Both the Securities and Exchange Commission and the Biden administration have said that they will closely monitor the matter.

Many analysts and pundits liken GameStop’s short squeeze to gambling. However, the volatility could provide GameStop with the cash it requires to survive. The stock price will likely fall even if GameStop invests the money in its business model.

GameStop’s inability to go bankrupt will not prevent employment, and a portion of the stock price may be recovered. Although the ultimate collapse will be painful for ordinary traders and hedge funds alike, it is possible that GameStop, as the pawn in this game, may have a small chance of recovery once the dust settles.

 

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