GameStop Corp shares surged as speculation swirled around a return to social media by Keith Gill, who drove the meme-stock mania of 2021 under the moniker 'Roaring Kitty'.

The account’s post on X showed a man leaning forward with what looked like a gaming controller, which some traders interpreted to mean that Gill is coming back into action. Gill, whose account has long been dormant, shot to fame in 2021 by rallying day traders on Reddit in an effort to squeeze GameStop short sellers.

The post had attracted more than nine million views in the hours since its publication. 

The reaction to Gill’s post shows shades of the original 2021 mania, with chatter across Reddit’s WallStreetBets and activity on StockTwits sparking a rush of retail trader buying. 

“That he is able to generate a crowd says that the crowd is back to feeling FOMO (fear of missing out) and YOLO (you only live once) in an enormous way,” said Peter Atwater, the president of Financial Insyghts and an adjunct professor at William & Mary and the University of Delaware. “When people dive into things that are of pure speculative value, their confidence is extremely high and this is one of the ways that it manifests.”

More than 35 million shares changed hands before 9.50am in New York, roughly 33-times what’s been normal in that stretch over the past month, as trading was halted for volatility three times within the opening 20 minutes. The shares were trading near US$33 on Monday. 

GameStop ripped off a three-week rally in the lead up to Monday’s pop, its longest such winning streak this year as shares soared 68% over that stretch. 

The stock famously soared more than 2,000% in early 2021, bringing the meme-stock frenzy into the broader public consciousness. When adjusting for a stock split, the shares peaked at $86.88 near the end of that month before crashing about 88% in three weeks. 

Roaring Kitty helped draw attention to the stock’s eye-popping short-interest ratio - some 140% of available shares were sold short - as investors bet on the entrepreneur-turned-retail trading icon Ryan Cohen. Cohen, the video-game retailer’s largest shareholder who has a cult-like following among individual investors, built out a stake through early 2021 and pushed to essentially take over the company as retail traders cheered him on.

After selling Chewy Inc, the pet retailer he co-founded, for more than US$3 billion in 2017, he ploughed much of that into Apple Inc stock, which went on to rally. His firm, RC Ventures LLC, first disclosed its GameStop stake in 2020 when the shares traded below US$2 on a split-adjusted basis (the retailer executed a four-for-one stock split in 2022).

The billionaire has since built his position to some 36.8 million shares, accounting for 12% of the company, as he became the chief executive officer, president and chairman of the board. Late last year, the company disclosed an unorthodox plan for its roughly US$900 million in cash and equivalents: allowing Cohen to buy stocks of other companies.

It’s worth noting that the percentage of shares available for trading sold short has stayed at roughly 24%, according to financial analytics firm S3 Partners. That’s elevated for a typical company but nowhere near the levels that preceded the 2021 mania.

With no clear catalyst driving the recent gains, GameStop’s move has again seen retail investors make up the bulk of demand. Inflows through the last week totalled US$12 million, according to Giacomo Pierantoni, the head of data at Vanda Research. 

“These surges in retail activity have served as contrarian signals, prompting institutional investors to quickly short the stock following these rallies driven by retail investors,” Pierantoni added.

GameStop is expected to report quarterly results next month before an annual shareholder meeting. While the majority of Wall Street has avoided covering the stock in recent years, just three analysts cover it with two advising clients to sell and only one assigning a hold rating as none suggest buying the stock, according to data compiled by Bloomberg. 

Analysts have long warned that GameStop was detached from fundamental values as it carries a US$10 billion market capitalisation. The company reported just US$6.7 million in net sales for 2023 on US$5.27 billion in revenue. For reference, that’s more than double market darling Nvidia Corp’s multiple of 75.

“I don’t think they have the numbers to keep this up, nor do I think the shorts have the resolve shown by Gabe Plotkin three years ago, so likely this fizzles as the fundamentals continue to deteriorate,” said Wedbush’s Michael Pachter, one of GameStop’s most vocal sceptics.

What’s more, the lack of a clear strategy has befuddled the few analysts that cover the company. It also hasn’t taken questions on an earnings call since Cohen started to shake-up the company.

“Game sales are flattish, hardware sales are down, and the shift to digital downloads continues, so it’s highly unlikely GameStop can stop shrinking,” said Pachter.

Option activity on GameStop has soared so far this month. Open interest on calls has reached 588,205 contracts, the highest point this year, while 293,402 calls were traded last Friday, nearly three times the 20-day average.

Meanwhile, AMC Entertainment Holdings Inc - another stock favoured by retail traders - jumped 18%. The stock is down more than 99% since its 2021 peak, while GameStop shares have lost about 70% of their value since then.

The flurry of activity broadened from former darlings to newer companies that have taken the meme stock baton like BlackBerry Ltd and Trump Media & Technology Group Corp.

“They are the dynamic duo of meme stock-ery,” said Atwater, who previously ran JPMorgan’s asset-backed securities business and served in executive roles at First USA, Bank One and Juniper Financial. 

  - Bloomberg