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Why GameStop Stock Soared Today

What happened

Shares of GameStop (NYSE: GME) skyrocketed on Thursday before paring its gains. By the close of trading, the video game retailer's stock price was up 18.6% after more than doubling earlier in the day.

So what

When a chief financial officer suddenly departs, it usually causes concern among investors -- and the company's shares typically decline in value. GameStop, however, is not trading anything like a typical stock.

Since announcing the resignation of CFO Jim Bell after the market close on Tuesday, GameStop's shares have climbed more than 140%.

GameStop took investors on another wild ride on Thursday. Image source: Getty Images.

Bell's departure is unlikely to be the main cause of such a violent upward move. More likely is that Reddit's army of traders is launching a coordinated buying campaign in hopes of igniting another short squeeze.

Now what

Wallstreetbets, a Reddit group with 9.3 million members, used similar tactics to spark a rally in GameStop in January. The subsequent trading frenzy drove GameStop's stock price from $17.25 on Jan. 4 to as high as $483 on Jan. 28.

So what's the problem? Well, once the short squeeze ended and Reddit's traders moved on to other stocks, GameStop plunged back below $40 per share by Feb. 19. Investors who bought on the way up suffered devastating losses.

Unfortunately, this latest round of wild trading in GameStop is also likely to end in tears for investors. The struggling retailer's current share price is not supported by the underlying fundamentals of its business -- and pump and dump schemes nearly always end in disaster for unsuspecting shareholders.

Thus, for the great majority of investors, the best move right now is to stay far away from GameStop stock.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.


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