Game Stop (GME)'s Personality Spells Trouble for the Short Sellers

When, in the last Presidential election, Mitt Romney told a heckler that “Corporations are people too…” it was seen as one of the defining moments of a losing campaign. The statement, and the somewhat condescending tone in which it was delivered, may have played into the image of Romney as an out of touch Wall Street type, but from a factual basis it could not be disputed. Legally, corporations are people. Most would say that it ends at the legal definition, though. The law may say that corporations are people, but they don’t have feelings or characteristics…or do they?

If you will allow me for a minute to talk in terms of my personal, uncorroborated feelings rather than evidence and hard facts, I think I can show that they do. Back in 2012, for example, Apple (AAPL) seemed extremely sensitive to criticism and corporate feelings were easily hurt. The corporation was seeking an identity following the death of Steve Jobs, and any criticism, or even perceived criticism, seemed to draw a response. Just like a person in that situation, though, they and their friends compensated for their insecurity with arrogance. Any suggestion that $700 may be a bit steep for the stock at the time was met with ridicule. Exponential growth was taken as a given.

That, rather than any economic interest was presumably why so many took so much pleasure in the stock's dramatic drop. There were a lot of people, it seemed, that didn’t much care for the person Apple had become.

Some aspects of corporate identity are obviously manufactured. When BP (BP) started touting their "green" credentials a few years ago, they probably convinced very few, even before the Deepwater Horizon disaster. When Wal-Mart (WMT) states their support of small businesses and concern about the communities in which they operate a large number of people judge them based on the results of their actions rather than their words. Sometimes, though, a corporation’s real character can be divined, and it gives a clue as to what to do with their stock.

Game Stop (GME)’s personality has, like Apple’s, more than a hint of geek about it, but that is where the similarity ends. Game Stop is about as far from the arrogant, supremely confident, yet sensitive, giant as can be imagined. They are the tough little fighter; hardened by years of insults and predictions of certain death. Logic tells us that a brick and mortar game retailer should have folded a while ago. Traders evidently think so as there are just under 50 million shares currently sold short, which represents almost a month to cover. GME, however, just shrugs its shoulders and keeps on going.

Not only is Game Stop surviving, it is also making money. In fact they have been profitable consistently, even through the recession. If analysts’ predictions are to be believed they will even demonstrate growth in the next year, with forward 12 month EPS indicating a 14 percent increase on last year’s profit.

There has been much written on why online game purchases haven’t killed GME already. My favorite reason is that gamers get their only human contact when they go to the store and are reluctant to give that up. The company will presumably tell you that it is down to the help and advice offered by their high quality associates. It is most likely that both of these things, along with a host of other factors have combined to keep Game Stop not just alive, but, to a certain extent also kicking.

Corporations do display personality, and GME’s is fairly clear. It is the plucky little “engine that could”, the Rocky-like fighter that ignores the odds and doesn’t know when it is beaten. These are intangible things, but they spell trouble for the army of traders sitting short of the stock.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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