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Analyst on Gamestop’s surge: ‘This is truly insane’

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Gamestop is surging today as the short squeeze continues. Loop Capital Markets Analyst Anthony Chukumba joins Yahoo Finance Live to discuss.

Video Transcript

ZACK GUZMAN: I want to shift our focus back over to what we've been watching play out in one of the most epic short squeezes of all time. GameStop shares once again spiking as much as 85% in today's session, as we continue to watch that play out in what is an incredible story tying together quite a few things, including some big bets on Wall Street, with some big bets made in a Reddit forum. And joining us now for more on that is Anthony Chukumba, Loop Capital markets analyst. And he joins us on the phone here.

Anthony, it's pretty crazy. I mean, GameStop has lost now its only recommendation from analysts now in this rally. But when you look at the fundamentals, a lot of people pointing out this company is not expected to turn a profit for years. And right now, the valuation is beyond what you would describe as anything supported by fundamentals. So how crazy is GameStop's run here?

ANTHONY CHUKUMBA: I've been on Wall Street for over 20 years. And I cannot think of anything that I've seen that is nearly as insane as what's going on with the GameStop right now. This is not a situation like Tesla, for example, where the stock keeps going up and up and up.

But at the end of the day, I mean, they've got a great product. They've got a founder who's a genius, the secular tailwinds with the shift to electronic vehicles. I mean, you know, the stock price is going one way, and the fundamentals are going the complete opposite. So this is truly insane, quite frankly.

AKIKO FUJITA: Anthony, Zack just alluded to that Reddit thread that a lot of people are sort of attributing to the big pop that we have seen over the last few sessions on GameStop. How much of that is really the culprit here? Do you think that's a bit overstated? What are you seeing in terms of inflows?

ANTHONY CHUKUMBA: I don't think it's overstated in the least bit. I mean, this is clearly individual investors. Many of them have Robinhood accounts. Many of them are trading with options. Many of them are trading on margins. You know, they don't really understand, you know, how stocks at least are supposed to trade.

And the reason they can have such an outsized influence is because GameStop has such high short interest, over 100% short interest. And so, you know, you have shorts who are covering their shorts, and it pushes the stock higher. But I mean, this is definitely 100% being driven by retail investors, not by, you know, institutional investors, aside from institutional investors who are covering their shorts.

INES FERRE: Anthony, Ines here. There's been a lot of calls for the SEC to get involved. What can the SEC do at this point, do you think?

ANTHONY CHUKUMBA: You know, look, I'm not a lawyer, and I don't play one on TV. I'm not really sure that anything that's going on right now, as far as I can tell, is illegal. I mean, there's no sort of, you know, non-public information as far as I can tell that's being traded. I mean, this is just speculation. I mean, you know-- I mean, we saw it-- I mean, what was it, with the tulips or whatever in Holland 400 years ago.

I mean, these things happen. I mean, you know, I'm reminded of the words of John Maynard Keynes. The market can remain, you know, irrational [INAUDIBLE] and I think that's all that's really going on here. I don't think there's anything untoward going on, as far as I can tell.

ZACK GUZMAN: What is interesting here, I mean, when you think about the tulip bubble, obviously, people are, I guess, encouraged by the fact that you can consolidate and talk with other people here in this Reddit thread to kind of get everyone to work in tandem.

But to think that retail investors want to pay more than 420% above the average analyst target for GameStop, let's just consider the fact that, you know, this wasn't triggered in a vacuum. You did have some institutional investors-- a lot of people point to Michael Burry of "Big Short" fame-- piling in to GameStop ahead of all this and kind of pointed to in Wall Street bets that Reddit group as reason as to why they would want to get in. But how far beyond the fundamentals here and maybe an investor like Michael Burry, who may be betting on a GameStop, have we moved past in terms of where GameStop was supposed to go?

ANTHONY CHUKUMBA: Once again, we're far, far, far, far beyond that. And I don't think Michael Burry's really the fundamental catalyst. I mean, I think it's more Ryan Cohen, the co-founder of Chewy. He owns 13% of the stock, and he recently got three seats on the board. And so, I think that's what sort of triggered all of this. And, you know, look, I mean, he's saying, you know, that there's things that these guys can do to become a better omnichannel retailer and become more relevant.

I just-- you know, I really struggle because, you know, look, I mean, this guy is really great at selling dog food online. Not really sure what that has to do with selling video games. And quite frankly, GameStop's problem is not that they don't do a good job selling video games online. I mean, I guess, they could do a slightly better job. Everyone can. It's the fact that more and more gamers, you know, they're not buying physical games. They're just downloading them. And so, you know, GameStop can have a better website than Amazon, and that's not going to change that.

AKIKO FUJITA: Anthony, this, of course, comes at a time when there are a lot of concerns about just how frothy things are getting in the market. We were talking about that with our earlier guest, these valuations being pushed higher largely because of the retail trade as well. I know you're here to talk specifically about GameStop, and you said you've never seen anything like this before. But how much of the dynamics at play in this particular case are you worried could translate into some of these other names that you think are way above where they should be trading?

ANTHONY CHUKUMBA: I mean, unfortunately, it looks like that's already starting to happen, right? I mean, look at the trading right now in Bed, Bath, and Beyond. Look at the trading right now in BlackBerry. I mean, you know, I think, look, there certainly are-- some stocks are a lot more susceptible than others. I suspect that, you know, when you have a stock, when you have a lot of short interest, I mean, it almost is like dynamite.

I mean, you get some of these retail investors, you know, in these Reddit, you know, boards and whatever. And they all get together. They buy the stock. And, you know, the shorts start to get squeezed, and they start covering. And it becomes sort of this virtuous cycle. Now, at some point, it can certainly go the other way. But yeah, unfortunately, it doesn't look like this is just a GameStop specific phenomenon. And quite frankly, this is just not healthy for the markets.

INES FERRE: Anthony, and what advice would you give to retail investors that are looking at this stock, retail investors that may want to get into this stock? And what advice would you give to short sellers at this point?

ANTHONY CHUKUMBA: So the advice I would give to retail investors, if you want to gamble, go to the casino. I mean, this is-- you know, this is just not-- I mean, this is not what the markets are for. I mean, look, I want to be very clear. I think it's great that individual investors are getting more involved in the stock market. I mean, I think that, you know, a diversified portfolio is a great way to create wealth and save for retirement and, you know, and save for your family and all those type of things.

But there's a difference between having a well-balanced portfolio with a bunch of different mutual funds or ETFs or even stocks and what we're seeing in GameStop. I mean, you know, look, with the shorts, I would just say, I mean, any company that's got really high short interest, you've got to be really, really careful right now. Because, you know, what happened with GameStop, what's happening with, you know, with BlackBerry, [INAUDIBLE] can certainly happen to you. And I'll certainly tell you-- if you're an individual investor, and you've made a lot of money in GameStop, sell the stock now and ask questions later.

ZACK GUZMAN: Yeah, that's one of the warnings we've been hearing from a few people. But you raised the issue of short squeezes here. And S3 Partners, of course, does a pretty good job of laying out short interest. 146%, a lot of people might say, how is that possible? But shares can be shorted multiple times here.

So when you look at Bed, Bath, and Beyond, National Beverage Corp, Fizz, the parent company of LaCroix, also seeing pretty high short interest float above 60%. What's your take maybe on how that would extend to some of these other names that's always on the list of the most shorted companies? Are you expecting to see similar runs up in those?

ANTHONY CHUKUMBA: It's entirely possible. It's entirely possible. I mean, look, it's hard to say where this mob is going to go. But certainly, you know, any company that's got, you know, 50, 60 plus percent short interest, I'd be very, very wary about shorting them. I'm not saying I would go long them either because like I said, this is not to me, this is not investing. This is gambling. This is unhealthy. But certainly, if I was a short seller, I'd be very, very wary of any stock that had super high shortage, particularly more sort of consumer stocks that, you know, that are easier for these Robinhood traders to understand.

AKIKO FUJITA: Some sound advice there, Anthony. Fascinating story here playing out in the markets today. Anthony Chukumba, Loop Capital markets analyst, and our thanks to Ines Ferre as well for joining in on that conversation.