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Why GameStop Is Tumbling 12% Today

What happened

Shares of GameStop (NYSE: GME) were tumbling 11% in midday trading Friday after director James Wolf sold 810,000 shares of the video game retailer's stock, valued at $21 million.

So what

GameStop's stock has been on a tear, more than doubling in the past week alone as short-sellers got caught out by bullish sentiment over higher holiday sales and activist investor RC Ventures' gaining three seats on the board of directors.

Image source: Getty Images.

Now what

Typically, insiders' selling stock, even large tranches like Wolf's, doesn't matter too much. Executives can sell their shares for any reason or no reason at all. A better indication of a company's direction comes when insiders buy, because as investing legend Peter Lynch has noted, they tend to do that only because they think the price is going up.

Yet selling shares during a short squeeze could also suggest a lack of faith that GameStop is worth the price it's been trading at. Because squeezes send stocks soaring, it also means they'll soon be heading back down after the short-sellers cover their positions.

GameStop has benefited from the start of the video game console upgrade cycle, and RC Ventures wants to ensure the retailer doesn't rest on its laurels. By forcing the company to evolve along with the continuing digital transformation of the industry, the activist investor is ensuring GameStop can survive well into the future.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends GameStop. The Motley Fool has a disclosure policy.


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