GameStop Shares Are Rising Again. Here’s the Lesson for Every Leader

GameStop‘s share price is rising again. It’s up more than 6 percent since Friday, and up over 22 percent from six months ago. You may remember GameStop (GME on the New York Stock Exchange) as the meme stock that rose from less than $20 to more than $460 per share in less than three weeks back in 2021 before falling back to more reasonable levels. It had a similar but even briefer rally last summer.

As of this writing, it’s trading at a less stratospheric $27.28. But with the share price going up despite falling sales and a downgraded rating, the last sell-side analyst to rate GameStop has thrown in the towel. Alicia Reese of Wedbush Securities, who most recently set the company’s target price at a lowly $13.50, announced she will no longer rate GameStop due to “reallocation of analyst resources.”

It’s a stark admission of something every smart entrepreneur knows. The correct price for anything—from a sandwich to a house to an equity—is always whatever a buyer is willing to pay for it. You might think that in a data-driven business such as investing, buying decisions would result from careful calculations. They usually don’t. They usually result from emotion, sometimes rationalized with data after the fact. Whatever you may tell yourself about how you decide what to buy, emotion is almost always part of the equation.

The reverse is also true. Win over a customer’s emotions and they will be likely to buy what you’re selling, whatever the data might say.

A Reddit group changes everything.

There is certainly a lot of emotion around GameStop. Its price surge in 2021 was caused by the Reddit group r/wallstreetbets, whose members embraced the stock at the behest of investor and financial analyst Keith Gill. These small-time investors drove the stock price up quickly. Elon Musk stepped into the fray with a couple of tweets to his 41 million followers, sending GameStop’s share price dramatically higher.

The result was a “short squeeze.” Hedge funds that had shorted GameStop, betting big that its price would fall, wound up losing billions. That likely pleased Musk, who’d had his own run-in with hedge funds short selling Tesla.

Unfortunately, many small investors who bought GameStop near its peak lost a lot of their savings. There were lawsuits, in particular against the trading platform Robin Hood, which temporarily suspended trading in GameStop and helped precipitate its rapid fall toward pre-meme prices. There was also a congressional investigation and then a couple of movies about the whole affair.

GameStop has nostalgia appeal.

Of course, most of this had little to do with GameStop’s underlying value or its business outlook. The company is perfectly positioned to capture people’s emotions. It comes from a simpler time, before digital downloads. Back then, shopping in a physical store for video games was a normal thing to do.

In addition to GameStop’s nostalgic appeal, there was the short squeeze. Most of the time in the markets, small investors operate at a disadvantage, and hedge fund managers often profit off their losses. But GameStop investors flipped that narrative on its head. People were enchanted by the David and Goliath quality of that event. More recently, GameStop captured people’s imaginations again by announcing a big investment in bitcoin, though the details aren’t known.

Meanwhile, though, there was a stock analyst making thoughtful buy or sell recommendations that no one listened to, after carefully parsing data no one seemed to care about. The finance site seeking Alpha put it tactfully: Since the short squeeze, “GME has always been a tricky proposition for traditional Wall Street analysis,” writes news editor Kim Khan. “The stock just does not trade on any fundamentals.” No wonder Wedbush decided to reallocate Reese’s time to other work where investors might actually listen to her opinion.

The price of everything will always be whatever people are willing to pay for it at any given moment. It’s more obvious with GameStop, since its share price has deviated mightily from what conventional wisdom would suggest. But it’s true of every product and service, including yours.