Robinhood Ruckus: What GameStop And Other ‘Short Squeeze Stocks’ Are Really Worth

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street.

Wall Street’s dirty secret went public this week. Fundamentals don’t always matter. Human beings are irrational.

Asset prices can bend the limits of statistics and common sense before cold logic takes over again. And once the market starts swinging like this, there’s not a lot of point in fighting the tide.

Just ask the hedge fund managers who sold troubled companies like GameStop Corp. (NYSE:GME) and AMC Entertainment Holdings Inc. (NYSE:AMC) short because, from an objective perspective, the stocks had nowhere left to go but down. In theory, those short positions were easy money. Most of my Wall Street peers had done the math and decided that GME was, at best, worth around $13 and fair value on AMC was $2.50 at best. 

The stocks were stalled until a few market mavericks realized that the bears had gotten in over their heads. As long as enough people were willing to defy Wall Street consensus, the bulls could go on the offensive.

And when the bulls started accumulating these once-neglected companies, the short sellers soon got desperate. Shares they needed to cover their positions were no longer circulating around the market.

Desperate short sellers will pay ridiculous prices to limit their losses. A month ago, AMC was stalled at a lowly $2 per share and GME had trouble holding $18.

Here we are now with GME spiking above $400, and there’s no ceiling in sight. Should we laugh at the bulls for hanging around? Or were the hedge fund managers wrong?

‘Fair Value’ Is Situational

GME is the kind of stock that would horrify investors like Warren Buffett whose goal is to identify robust companies, buy in at a good price and hold on forever.

The used game business becomes less relevant every year as new consoles come to market and render old software obsolete. Every effort to change course has faltered.

Sales peaked in 2012 and are looking to deteriorate another 18% this year. Even in the best scenario, it’s going to take another 2-3 years to turn the trend around. 

Meanwhile, the chain bleeds money most of every year. It is meaningless to even try evaluating GME on an earnings basis.

Break it up and sell off the assets, and the whole company is worth about $11 a share. Tack on another $1 for the business as a going concern, and you’re left with Wall Street consensus.

At $300, GME commands a sales multiple bigger than Inc. (NASDAQ:AMZN). While I am not a big fan of Amazon’s CEO Jeff Bezos, his company at least is profitable and growing at a reasonable rate.

Which company would you rather buy and hold forever?

AMC is an even gloomier story. The balance sheet shows negative book value of $49 per share and I don’t see a clear path toward the company ever operating profitably again.

Shut it down, break it up and shareholders are unlikely to achieve a good outcome here. But here we are, with the stock above $13 as the hedge funds reel.

I think that’s the lesson every professional trader needs to absorb here. AMC is not “worth” $13 to Warren Buffett, but if you’re a hedge fund desperate for shares at any price, $13 may even look like a bargain.

You can lose infinite money when a short position goes against you. That’s why my subscribers don’t short stocks when they want to bet on the downside.

We buy put options instead. The worst that can happen with a put is that your contracts expire worthless, which stings if you don’t have the right discipline in place.

(I’ve just rolled out a new capital management system for 2-Day Trader that’s working well. We squeeze out returns of about 50% a year by following these rules.)

The hedge funds, on the other hand, got greedy and they got lazy. They’re reaping the results now. And the retail traders using apps like Robinhood to accumulate “worthless” stocks are laughing all the way to the bank.

The Better Short Universe

Of course, I had to check out the system that the Robinhood traders are using. Believe it or not, they aren’t simply leaping onto the most heavily shorted stocks and waiting for the hedge funds to feel the squeeze.

GME was heavily shorted. AMC, on the other hand, didn’t even have enough short interest to trigger my automated screens.

If anything, the most heavily shorted stocks in the S&P 500 aren’t soaring because they just aren’t calling the Robinhood crowd to the party.

Dry cleaning company EVI Industries Inc. (NYSE:EVI), for example, would force the short sellers to buy back every share that comes to market in the next two months if they see the tide turning against them.

That simply hasn’t happened. Robinhood traders don’t care about dry cleaning. They’re really interested in buying brands they know as consumers and watching their money make a difference.

After all, many of the stocks that soared 100% or more this week aren’t heavily shorted at all. They’re shopping mall standards like Express Inc. (NASDAQ:EXPR) and headphone maker Koss Inc. (NASDAQ:KOSS).

While some hedge funds were betting against these companies, the “squeeze” is really more a matter of eager retail investors running with their own self-induced bullish urges.

When those urges fade and stimulus checks are spent, new buying interest will once again drop and these stocks will become dead money again. Institutional investors aren’t interested.

But in the meantime, these stocks can be a great ride. I’m considering adding a few of these hot money “meme” ideas to my Turbo Trader. Let me know if you’re interested.

Just remember that what goes up like a rocket can drop like a rock. If these valuations scare you, don’t worry about the market… but the outcome for these particular stocks is not great in the long term.

Either way, professionals stick to a longer-term view. You won’t find GME or AMC in my Value Authority portfolio. GameChangers is all about growth. 

I’m talking about all of this on my Millionaire Makers radio show. Now there’s a podcast (Spotify)(Apple) as well to keep you focused on opportunities to build real wealth while avoiding obvious threats.


share on:

Like This Article?
Now Get Mark's FREE Special Report:
3 Dividend Plays with Sky-High Returns

This newly-released report by a top-20 living economist details three investments that are your best bets for income and appreciation for the rest of the year and beyond.

Get Access to the Report, 100% FREE

share on:


Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

  • Forecasts & Strategies
  • Home Run Trader
  • Fast Money Alert
  • Five Star Trader
  • TNT Trader

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

  • Cash Machine
  • Premium Income PRO (exclusively for subscribers of Cash Machine)
  • Quick Income Trader
  • Breakout Options Alert
  • Hi-Tech Trader

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

  • Successful Investing
  • High Velocity Options
  • Intelligence Report
  • Bullseye Stock Trader
  • Eagle Eye Opener

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

  • Retirement Watch
  • Retirement Watch Spotlight Series
  • Lifetime Retirement Protection Program

Jon Johnson

Jon Johnson's philosophy in investing and trading is to take what the market gives you regardless if that is to the upside or downside. For the past 21 years, Jon has helped thousands of clients gain success in the financial markets through his newsletters and education services:

Product Details

  • Investment House Daily
  • Stock of the Week
  • Technical Traders Alert
  • Rapid Profits Stock Trader

Used by financial advisors and individual investors all over the world, is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

  • Dividend Investor

George Gilder

George Gilder is the most knowledgeable man in America when it comes to the future of technology and its impact on our lives.  He’s an established investor, bestselling author, and economist with an uncanny ability to foresee how new breakthroughs will play out, years in advance.

Product Details

  • Technology Report
  • Technology Report PRO
  • Moonshots
  • Private Reserve
  • Millionaire Circle


DayTradeSPY was founded by head trader Hugh Grossman, a retired internal auditor for a Fortune 500 company. After years of first-hand experience trying out one trading strategy after another, Hugh instead developed his own trading system centered around day trading SPY options. That’s it... Nothing else.

Product Details

  • Trading Room
  • Pick of the Day
  • Inner Circle
  • Online Workshops