GameStop Continues To Fall As Short Squeeze Bubble Bursts

GameStop shares lost another 60% in value on Tuesday, as the short squeeze that pushed the stock up 1,700% in January seems to be coming to an end.

GameStop (GME) shares closed at $90 yesterday and have lost over 80% in value since hitting intra-day highs of $483 last week. The stock is still up 377% year-to date but the recent collapse in price has wiped out over $27 billion in market value.

The video game retailer has become the poster child for popular community news group Reddit, whose followers successfully executed one of the largest short squeezes of all time.

Short interest in the stock has dropped dramatically from 144% last week to around 20%, according to securities tracking company Fintel, which means that most of the short positions on GameStop have been closed out.

Die-hard Reddit users have not yet given up their fight and are still trying to convince others to “Buy the Dip.” Even billionaire entrepreneur Mark Cuban has offered his advice, telling Reddit investors to hold on to their GameStop shares if they could afford it, according to Bloomberg. (See GameStop stock analysis on TipRanks)

However, analysts on the Street do not seem to agree. Baird analyst Colin Sebastian reiterated his Hold recommendation on GME last week, setting his price target at $13. This implies downside potential of a further 86% from current levels.

As the media hype around its share price dissipates, Sebastian offered four possible scenarios as GameStop focuses on its business model moving forward. The most likely scenario, according to Sebastian, is for the company to concentrate on “faster e-commerce growth,” together with some store closures and a “slower/gradual rollout of new services.”

Analysts on the Street concur with Baird’s views, with 4 analysts saying Hold and 2 saying Sell. The average analyst price target of $11.50 suggests downside potential for GME shares of 87% over the next 12 months.

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