Et tu, Gamestop?

After the close yesterday, Gamestop (GME) announced that it would be splitting its stock 4:1.  Technically it would be issuing a 300% stock dividend, but the effect is the same.  If you have 100 shares of GME today, you’ll have 400 on July 22^nd when the stock trades ex-dividend.,

The stock is rallying about 10% as I write this, thanks to the enthusiasm – misguided or not – that typically follows a stock split announcement.  The interesting thing here is that GME already rallied on this same piece of news about three months ago.  Actually, that rally was rather brief.  After the close on March 31^st, GME announced plans for a stock dividend with details to come later.  The stock rallied sharply in the aftermarket but ended April 1^st with a slight decline.  The chart below doesn’t capture the full range of the after-hours move, but we’ve highlighted that day’s opening spike with an arrow:

GME, 4-Month Chart, Hourly Bars

Source: Interactive Brokers

To be fair, GME had nearly tripled in the two weeks prior to that stock dividend announcement, so it is not unreasonable to think that the tepid response to the original announcement was more about exhaustion than a lack of enthusiasm.  Yet at the time we expressed the opinion that the decision to split GME was part of an orchestrated move to boost a tired stock’s price. 

The precipitating event that got GME moving in late March was the disclosure of a 100,000 share purchase by the company’s chairman on March 22^nd.  On the following day we noted that while the purchase apparently complied with the regulations that apply to insider purchases, the swift disclosure after a series of trades at ever-higher prices gave the appearance that the insider buying was done in a manner designed to rekindle enthusiasm in this particular meme stock.  If that was the motivation, it was quite successful, at least so far.  Even though the stock gave back almost all those gains within two months, it has rebounded once again from the lows after announcing plans for a digital wallet in late May.

I greeted each of those attempts to rekindle enthusiasm for the GME with a degree of cynicism.  As I noted on April 1^st, the periodic rallies in meme stocks in general and GME specifically were no longer organic waves of organic investor enthusiasm and instead the result of well-timed corporate activities.  Instead of growing the investor base, as we saw in early 2021, this year’s actions seem more designed to keep the existing base engaged. 

I view the timing of yesterday’s announcement in a similar light.  The stock had been testing the lows of a recent trading range, so it was an opportune time to unveil another measure that was likely to boost the shares.  As of now, it is doing so nicely. 

Yet as we noted last week, the recent performance of companies after announcing splits has been mixed and lackluster.  It is quite possible that the unique nature of GME’s performance and investor base will be sufficient to get that stock to act more positively, however.  For now at least, fundamentals don’t apply to meme stocks, and millions of dollars have been lost betting against them.  But I wouldn’t bet on GME simply because of a 4:1 split.