The 2020 pandemic hit many companies hard, while other companies took it as a chance to grow, seemingly unaffected by the state of the world around them. NVIDIA (NASDAQ:NVDA) came out as one of those thriving businesses and achieved gains of 122% in 2020. The company’s graphics processing units (GPUs) were present and needed for trends that accelerated exponentially due to the pandemic, boost...
In March 2020, we saw a rise in people who began to put their money in the stock market.
The online investing app Robinhood has been known as an attractive option for beginners, given its commission-free trading and gifting free shares to new users. It managed to acquire 3 million new users who have made the user base’s age average 31.
This means that young investors have been interested in putting their money to work for them. However, many of them have been interested in fast cash grabs and looking to get rich quickly.
Wall Street knows that the stock market is not made to make money quickly and has warned that a few stocks might suffer a downfall during 2021. This information should not be overlooked, especially by younger investors.
Why is that? The stock market is known to create wealth over time, with the occasional (and remarkably rare) golden stocks that win people money relatively fast.
One of the stocks it has warned us about is GameStop.
Why GameStop (NYSE: GME) is bound to drop
The answer might be the retail investor Reddit frenzy. In summary, this started when Redditors began buying GameStop stocks by massive numbers, increasing the value by over 4,700% over the past year. This made a couple of users grow their pockets quicker than usual, creating high expectations for further movements.
No surprise here. The stock hit the stratosphere last year. According to Wall Street’s predictions, the video game and accessories company should expect a downside of 93%.
Retail investors perceived high short interests in the company and were seriously betting on the company to fail. Because of this, Redditors were able to force a short squeeze by buying stocks disproportionately and holding them, forcing retail investors who had bet its price would fail to buy it to forestall greater losses. Many Reddit investors either sold the stock to make a quick profit or kept them to increase its value over time during this event.
However, most Reddit investors don’t look into the long-run and don’t have many fundamentals behind buying and holding these stocks other than forcing the short squeeze.
GameStop was extremely late to the party when everyone else moved into digital gaming. It did change its focus towards ecommerce strategies later on, but the sales still declined significantly.
Not all is lost, though. GameStop will experience a significant downfall now, but it might become profitable if it closes enough locations and reduces expenses. However, Wall Street perceives this as backtracking into profit rather than growing into it.