The last few weeks of trading have not been easy for GameStop (GME) – Get GameStop Corp. Class A Report stock. Since April, shares have fallen in line with the volatile broader market. Many investors are reluctant to buy more shares of stocks at the same time that other investors are panic selling.
However, like other meme stocks, GameStop’s secret weapon is its appeal among retail investors. The company’s management knows this and seeks to exploit this factor to maximum effect.
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Why Are the “Meme Guys” Hanging On?
Many Wall Street experts have portrayed individuals who hold meme stocks like GameStop and AMC Entertainment (AMC) – Get AMC Entertainment Holdings, Inc. Class A Report — the “meme guys” or “retail weirdos” — as investors who don’t know what they’re doing.
This is because, based strictly on these companies’ fundamentals, there are no valid arguments to support their high share prices.
Some meme stock bears have implied that the “meme guys” are hanging onto shares because they lack a clever exit strategy. But by holding on, GameStop shareholders have been able to keep GME shares trading at very high levels. Perhaps they don’t want to exit these positions yet.
Investment firm Bronte Capital, a GameStop short seller, has been skeptical about the ability of retail investors to trade options contracts versus professional corporate traders with significant amounts of capital at their disposal.
However, today the firm is more cautious about this issue and keeps in its fund a small short position on meme stocks. The GameStop story probably has taught many skeptics a lesson. Bronte Capital has said that it is not in a comfortable short GameStop position and that, in fact, retail investors trading options contracts are the main driving force behind the meme stock’s performance.
Ryan Cohen Has a Smart Plan for June
June promises to be an eventful month for GameStop investors. Right at the start, on June 2, the company will report its second-quarter earnings results, as well as hosting its annual stockholder meeting. This year, important items will be voted on, such as a stock split for GameStop shares and the 2022 Incentive Plan.
According to the company’s proxy statement, the goal behind the split is to increase the liquidity of its shares and make GME more accessible to the masses. Usually stock splits — while not fundamentally adding any value to a stock — can be a short-term catalyst for stocks. For proof of this, see recent cases like Apple (AAPL) – Get Apple Inc. Report, Alphabet (GOOGL) – Get Alphabet Inc. Class A Report, and Tesla (TSLA) – Get Tesla Inc Report.
Now, regarding the Incentive Plan of 2022, this could possibly have a negative effect on GameStop’s shareholders. If the plan is approved, 8 million shares of common stock will become available with the goal of future compensatory equity issuances. In other words: share dilution.
According to GameStop, it is crucial that the plan be approved in order to continue to attract, retain, and motivate the company’s high-quality management team. However, this should be nothing new to GameStop shareholders. The company announced last year that it would issue equity from time to time in a strategic manner.
Perhaps creating the narrative of a stock split to override the negative effect of a dilution could be a masterstroke by Ryan Cohen and his team in keeping the sentiment of shareholders high and thus keeping the meme factor on their side.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)