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  • Writer's pictureIshfaaq Peerally

GameStop Stock Short Squeeze?

GameStop stock $GME is down by 92% from all time high but in the last two weeks, the stock price doubled. Is the short squeeze finally happening? First, let's understand my thesis for investing in GameStop. GameStop is a failing business. Why would I invest in it? There's great value in GameStop and it is the prime example of a cigar butt stock. If we liquidated GameStop today, we would make about $300 million but the book value is more than $600 million. And this book value is based purely on tangible assets since they don't have any goodwill (there was an impairment of goodwill last year) and intangible assets left. It is better to buy a failing business at a very cheap price than buying a company with a great future at an expensive price. People made that mistake with Microsoft $MSFT in 2000. Microsoft had a great future but it took 16 years for the stock to recover. Some people say that GameStop is the new Blockbuster and going bankrupt. A company goes bankrupt if they cannot repay their debt. GameStop doesn't have much debt. For a cigar butt stock to go higher, there needs to be a catalyst that will propel the stock price higher. In the case of GameStop, there are several of them: 1. New console cycle. GameStop stock is cyclical. The new xbox and PlayStation will be launched this year. Only a small increase in sales can be a catalyst for GameStop stock because a short squeeze can happen. 2. Short squeeze. 86% of the shares of GameStop are being shorted. If the price go higher, the short sellers will need to buy shares to cover their positions, sending the stock price even higher. What's happening to GameStop stock now? It went down after they were trying to keep their stores opened as essential services. Then Michael Burry filed his 13-F form and he has been buying more shares of GameStop. The stock went higher. Two other hedge funds, Permit Capital and Hestia Capital, are trying to add two of their people on the board of directors. This requires a vote today by shareholders and these shareholders have been recalling the shares. That's what triggered a short squeeze and the stock price doubled in two weeks. This is not the big short squeeze that I've been talking about but it shows us how a small short squeeze can have such a big effect on the price. There's a lot of activism going on with GameStop. Michael Burry asked them to buy back their shares, they added new board members. With this limited number of shares, we don't need much investments for a big profit. GameStop can be a 5 bagger with only a $1.2 billion investment. Investing in GameStop is risky. That's why it is only 7% of my portfolio. Let's say I'm wrong. I'll lose this 7% over the long-term. But if I'm right, I'll make a fortune. The reward is much bigger than the risk. Watch the full video on YouTube and Subscribe: Here's my full analysis of GameStop (free): Join my private investing group on Facebook:

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