Company / Analytics

Analytics, 01 April 2022

What to Know about GameStop Stock Split

Video game retailer & meme stock GameStop plans to split its stock, pending approval by shareholders, according to a new regulatory filing. The plans to increase its total number of shares from 300 million to 1 billion.

Stock splits do not change the financial value of a shareholder’s ownership stake, but they make shares more affordable for individual investors by lowering the price, without affecting the company’s valuation.

*In recent weeks, companies including Amazon and Google have announced 20-for-1 stock splits, which would drastically lower their respective share prices from thousands of dollars per share to mere hundreds of dollars per share. *

Stock splits are mostly a marketing ploy, designed to reconfigure stock prices to appeal to retail investors. Would you prefer to buy one share of a $1,000 stock or 10 shares of a $100 stock? Something about the 10 shares feels better to most investors.

Here is what to know about GameStop’s stock split

GameStop’s stock costs about $190 per share considering the after-hours movement but has swung wildly from $15 per share to a high of $325 since it was the subject of a well-publicized short squeeze in January 2021. The split, if executed today, would price GameStop stock at about $57 per share.

Stock splits are mostly a marketing ploy, designed to reconfigure stock prices to appeal to retail investors. Would you prefer to buy one share of a $1,000 stock or 10 shares of a $100 stock? Something about the 10 shares feels better to most investors.

Data shows that stock purchasing surges in the days after stock split announcements, as was the case with Tesla, Amazon, Apple, and Google’s most recent announcements, according to the financial firm Vanda Research. While big tech giants like Amazon want to cash in on the retail investing boom, GameStop is trying to renew the Reddit-based retail interest that made it the quintessential meme stock in the first place.

Some investors are betting that the stock split will boost the value of GameStop by attracting more meme-stock enthusiasts. The firm’s shares jumped 19% in after-hours trading on Thursday after the company announced the move.

On Monday, Tesla’s market capitalisation jumped by more than $80 billion after the electric car maker said it would seek investor approval to once again increase the number of its shares to enable a future stock split, without saying when that split might occur.

Outlook

This month’s stock market recovery, driven by hopes of a resolution in Russia’s conflict with Ukraine, has boosted the investors’ risk appetite, making conditions for meme-stock rallies more favorable.

Meme stocks are heavily shorted shares that are snapped up by retail investors on social media platforms such as Reddit with the aim of squeezing out hedge funds betting against them. The trend took Wall Street by storm in January 2021 and slowly fizzled over the course of the year.

GameStop plans to increase its number of outstanding Class A common shares to 1 billion from 300 million, it said in a filing. The company will also ask shareholders to vote on a incentive plan “to support future compensatory equity issuances”, it added. The date and location of the company’s annual shareholders meeting have not yet been announced.

Shares of GameStop have been on a tear this month, up 35%, as enthusiastic retail investors stood by their meme favorite. The stock got a boost earlier this month when chairman Ryan Cohen bought an additional 100,000 shares, bringing the activist investor’s ownership to 11.9%. Still, investors and analysts hoping for a fundamental turnaround at GameStop have been disappointed so far, as the company revealed little detail about its e-commerce transformation.

Should I buy GameStop shares?

The current consensus among 3 polled investment analysts is to sell stock in GameStop Corp. This rating has held steady since March, when it was unchanged from a sell rating. The 4 analysts offering 12-month price forecasts for GameStop Corp have a median target of 58.85, with a high estimate of 90.00 and a low estimate of 23.00. The median estimate represents a -64.64% decrease from the last price of 166.45.

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