Before the insanity, before humans lost their gosh-darned minds, GameStop (GME) was a simple Deep Value stock.
That’s how it started.
Back in the day, Michael Burry (of Big Short fame) thought GME was undervalued and took a public position.
Was it undervalued?
Absolutely.
On 6/5/19, GME gapped down big. That gap down to $1.37 took it down below its lower Band and took price far away from “fair value” up around $4.80 (using the 800 SMA).
If the company wasn’t going under, there was a monstrous amount of potential upside.
Did it get back to “fair value”?
Yes and no. And oh my.
On 9/23/20, GME hit its “fair value” moving average line, which is fine to use as an exit. At that point, the price was at $2.72.
By buying at deep value, we could’ve made 98.5%–even though it wasn’t at our original “fair value” target level (from the time we took the trade).
But doubling our money in a little over a year isn’t bad.
And if we held on even after reaching our target?
Yikes.
GME went all the way up to $120.
As it turns out, GameStop was a Deep Value trade on steroids.
Who knew?
Happy trading,
— Scott Welsh
