A handful of companies split their stocks recently, and GameStop (GME) is following the trend.
GameStop Corp. shares jumped 10% in the opening minutes of Thursday’s session after announcing a four-for-one stock split in the form of a dividend, becoming one of the latest companies to do so as the practice has gained in popularity.
Share splits had almost disappeared from U.S. stock markets before Apple Inc. and Tesla Inc. revived the practice after splitting their stocks in 2020. Amazon.com Inc. followed suit earlier this year. The moves helped trigger rallies in the companies’ shares as retail investors, who tend to favor stocks with lower price tags, flocked to them.
GameStop has been beleaguered by questions about its business model and direction. At a time when consumers prefer to purchase video games digitally in online stores, GameStop has experimented with pivots into esports and even crypto. The company became the poster child for so-called meme stocks, seeing volatile swings in the share price over the last year that have had little to do with its business fundamentals.
Classically the reason to split a stock is to make it more affordable for retail investors, though that reason has become less important as (1) retail brokerage commissions went to zero and (2) retail brokerages started offering fractional-share trading. The postmodern meme-stock-y reason to split a stock is to make YOLOing call options more affordable for retail traders; options contracts still trade in units of 100 shares, and if you cut the share price by 75% then more people can afford to buy call options, which is the preferred meme-stock way to push the stock up.
I am not sure that GameStop can revive the magic of last January, when retail traders bought stock and options and pushed its stock to the moon, but if you’re in the business of running a meme-stock company you do have to give your shareholders what they want and I suppose this is what they want. Seems fine. Here’s a guy:
If GameStop split at its recent after-hours levels, it would trade at $30.81.
That is around the $30 pre-split price target Wedbush analyst Michael Pachter assigns the stock, which he rates at Underperform. “Makes it more affordable for unsuspecting rubes who haven’t yet lost all of their money,” Pachter told Barron’s via email when asked about the split.
Surely they are suspecting rubes by now? Like at this point GameStop is its own special asset class; nobody is buying GameStop stock because they walk by a GameStop store at the mall and are like “oh GameStop, I enjoy buying video games there, I should buy the stock, I’m sure that an efficient market prices it appropriately so when I put in a market order I will pay a fair price for the present value of its long-term cash flows.”