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GameStop has been hit hard as more people download games instead of using physical discs.
Justin Sullivan / Getty Images
The GameStop saga will take another twist on Friday when shares begin trading following the company’s four-for-one stock split.
Anyone who was a GameStop shareholder at the close of business Monday will receive three additional shares. Investors who bought GameStop stock between Tuesday and Thursday will receive their additional shares from the seller.
On Friday, GameStop stock will trade on a split-adjusted basis, meaning a share will be worth a quarter of what a share was worth before the split. GameStop shares closed Thursday at $153.47, so the price would be $38.37 on a split-adjusted basis.
Stock splits do not change anything fundamentally about an underlying company because they are akin to cutting the same pie into smaller slices.
That said, some investors pile in before stock splits because the stocks that split tend to outperform the market. This is likely a case of the tail wagging the dog, as stocks with strong momentum are more likely to split than market laggards.
GameStop shares are up 3.7% in 2022, although they are down 14% from where they were trading 12 months ago. The S&P 500 is down about 16% so far this year, putting it 8% below its level at this point in 2021.
Even on a split-adjusted basis, the stock would be well above where most analysts expected GameStop to trade in 2020, and even 2021. The stock was trading at less than $3 at the start of the pandemic , but they jumped in August 2020 when Chewy. co-founder Ryan Cohen disclosed a stake. He joined the board in January 2021, starting a buying spree among retail investors exchanging stock tips on Reddit. This surge in prices forced investors who had bet against the stock to close their positions in an epic squeeze that strangled some hedge funds.
GameStop shares closed as high as $347.51.
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Cohen became chairman in June 2021, when the company shook up its C suite with executives with e-commerce experience. Under CEO Matt Furlong, the company has been investing heavily to turn it around.
GameStop had struggled for years as consumers shifted from physical discs to online games and digital downloads. Now, go big on expanded deals like PC supplies and TVs. It also launched a non-fungible token marketplace that it hopes will better position GameStop for the next era of gaming, though analysts are skeptical it could turn the company’s fortunes around.
Management said this spring it wanted a stock split, and in June shareholders approved an increase in the number of authorized shares from 300 million to 1 billion. GameStop announced details of the split this month.
The company is still popular in some corners of Reddit. Some users believe another dramatic increase could be on the way. On the other hand, the stock still has more than its fair share of short sellers, who are selling borrowed shares to bet on a bigger drop.
About 13.5 million pre-split shares, or 21.6% of the shares available for trading, were recently sold short, according to data from short-selling analysis firm S3 Partners. The amount of shares shorted will change after the split, but the dollar amount, $2.15 billion, would remain unchanged, according to S3 Partners principal Matthew Unterman.
Write to Connor Smith at connor.smith@barrons.com