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Jan 26, 2021

GameStop's 400% rally puts market value atop some in S&P 500

BlackBerry and GameStop valuations show some sanity in recent spike

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GameStop Corp. soared for a fourth straight session, catapulting the former small cap’s market value beyond 14 members of the S&P 500, including Marathon Oil Corp.

The stock climbed as much as 32 per cent before trimming gains to put its market capitalization at about US$6.5 billion, more than the likes of Apache Corp. and Hanesbrands Inc. It surpassed insurance-provider Unum Group and refiner HollyFrontier Corp. on Monday.

The video-game retailer has climbed about 400 per cent this year as traders piled into the stock after activist investor and Chewy Inc. co-founder Ryan Cohen joined its board earlier this month. The company’s market value briefly topped US$10 billion on Monday, up from just US$1.3 billion at the start of the year.

GameStop’s rapid ascension has made it more valuable than generic drugmaker Perrigo Co., a company that has paid investors a dividend for decades. While Grapevine, Texas-based GameStop isn’t projected to report a profit before fiscal 2023, Perrigo is expected to continue its revenue growth over the next five years after third-quarter net sales were US$1.2 billion.

The stock’s surge has in part been fueled by an army of Reddit-charged day traders who used the website’s WallStreetBets forum to pump up shares and fight back against the huge levels of short interest, which has held steady at about 140 per cent of the float, according to data compiled by S3 Partners. Short bets by Gabe Plotkin’s Melvin Capital and Andrew Left’s Citron Research have faced a reckoning in the battle with GameStop’s retail fans.

Options trading has also surged with retail investors ramping up bets on even more upside. The most active contracts were US$115 calls that are set to expire on Friday, while US$200 calls were the second most active contract.

Hedge fund titans Ken Griffin and Steve Cohen boosted Melvin Capital, according to a statement on Monday, injecting a total of US$2.75 billion into the firm after it lost about 30 per cent this year. The capital infusion came after Melvin Capital, which started the year with about US$12.5 billion in assets, saw short bets, including GameStop, go awry, people familiar with the firm said.