GameStop shares dropped 27 per cent on Thursday after it announced the US Securities and Exchange Commission (SEC) was investigating the video game retailer’s trading activity.
The retailer became a “meme-stock” earlier this year after a Reddit-driven stock rollercoaster which led to it selling $1 billion of additional shares.
The company announced on Wednesday that the SEC had contacted its staff on May 26 as part of an investigation into its trading activities.
GameStop has said it does not expect the inquiry to “adversely impact” it, and that it planned to “co-operate fully with the SEC on this matter”.
It also said it was planning on filing a registration with the SEC for up to five million additional shares which if granted, will dilute the value of current shares owned by investors.
“When you dilute for shareholders your stock price is supposed to go down, so in a way that is some sense of normalcy, outside of that, GameStop trades on pixie dust and dreams,” Loop Capital managing director said.
“The stock has completely disconnected from fundamentals and that hasn’t changed.
“So whatever GameStop reported yesterday, it wouldn’t make any difference to the Reddit traders.”
The company recently filled two of its most important C-suite positions with ex Amazon veterans as the company reported first-quarter sales growth of around 25 per cent.
GameStop has revamped its leadership recently in a bid to transform its brand image after Chewy co-founder Ryan Cohen urged the company to stop thinking like a traditional retailer and think more like a tech company.
Cohen has since become chairman of GameStop after previously being appointed to the board and then a special committee.
The retailer has recovered well from the pandemic in Q1, with sales increasing 25.1 per cent to £1.3 billion despite having a store base that was 12 per cent smaller than it was the previous year however has remained quiet about its short-term and long-term plans.