Another week has past and GameStop’s (NYSE:GME) stock has grown more volatile, putting investors further at risk.
On June 12, GameStop stock plunged 25% on reports that investor Keith Gill, who goes by the online handle “Roaring Kitty,” exercised most of the 120,000 call option contracts he had.
Gill apparently used the options contracts to buy even more GME stock. As the trading week ended on June 14, Gill shared a screenshot of his investment account that showed he held over nine million shares of GameStop, up from five million shares previously.
Gill’s increased holdings of GameStop did no more for the company’s share price than his livestream event on YouTube June 7.
The fact that Gill is foolish enough to continue buying GME stock doesn’t change the fact that GameStop remains a troubled company and bad investment.
Diluting Shareholders
As for GameStop, the company and its CEO Ryan Cohen have responded to the renewed interest in the stock by selling more stock and diluting the holdings of existing shareholders.
GameStop recently raised $2.14 billion from a share sale, capitalizing on the fact that GME stock more than doubled in price after Gill began posting again on X and returned to YouTube.
In all, the video game retailer has raised more than $3 billion since mid-March via share sales as retail investors jumped back into the stock. The latest sale of 75 million shares was at an average price of $28.49 each.
However, since Gill held his livestream on YouTube, GameStop’s stock has been extremely volatile. That volatility, combined with the share dilution, has once again burned many investors who fell for the hype around GME stock.
Questions That Need Answers
The current situation surrounding GameStop — both Roaring Kitty’s return and the company’s stock sales — have raised a lot of questions.
Market regulators have announced that they are investigating Keith Gill for potential market manipulation, and there has been speculation that Gill could be working in concert with GameStop, driving up the stock price so that the company can sell shares at top dollar.
What’s really going on is unclear, but there are questions that shareholders, regulators, analysts and the media want answered.
Investors hope to raise those questions at GameStop’s annual shareholder meeting, which was recently canceled and rescheduled for June 17. How forthcoming management is at the meeting will be interesting to see. Hopefully they outline a plan for the company’s future after its dreadful earnings.
Sell GameStop Stock
There’s nothing to be gained from taking a position in GameStop stock. The company is in terrible shape, with declining sales, inept management, and a failed turnaround strategy dragging the share price lower.
Investors who are buying into Keith Gill’s return are likely to be burned just as they were when he last pumped the stock up on social media and then abruptly disappeared for three years, earning millions of dollars for himself and leaving other investors deep in the red. GameStop stock is not a buy.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.