We've been getting a lot of questions about GameStop these past few days, and one of our members even asked "Why is GameStop worth more than Apple?
So, we sat down with Sabrina LaFleur, CERTIFIED FINANCIAL PLANNER™ with LearnLux to break it down in simple terms.
This brings up an important topic for early investors. When evaluating individual stock, it's important to understand the difference between a company's share price, which is how much it would cost to buy one share, versus the overall market capitalization or market cap, which is the company's total worth in the open market.
Let's break that down. Pretend a cup of lentils represents all outstanding shares of GameStop. That's all outstanding stock the company has issued. So one lentil equals one share. Now, the share price is not fixed. It fluctuates based on how much people buy and sell that stock throughout the day. If the public thinks the company is doing well, investors are likely to buy, which drives the share price up.
Conversely, if the public thinks the company is in decline, investors will likely sell, driving the price down. So what does the share price actually tell us? Well, it is the dollar amount used to determine a company's total worth in the open market at any given time. This is known as market cap and is calculated by multiplying the company's share price by the number of outstanding shares.
So let's apply this to GameStop. On January 22nd 2021, traders in a popular chatroom called WallStreetBets (now with over 6 million followers) began buying up shares of GameStop in an effort to counteract analysts who had begun betting against the company. The trading volume became so great that it drove the share price from as low as $34 on January 15th to as high as $468 on January 28th, while Apple's share price floated around $130 per share in the same period.
So GameStop shares were worth more than Apple, but let's put that in perspective. Apple's market cap, which again is the share price times the number of outstanding shares, is still worth 140 times more than GameStop.
How is that? Because Apple has way more outstanding shares... about 240 times more. So even though GameStop's share price is more than Apple's right now, the company is still worth a drop in the bucket compared to Apple.
Thanks for joining us for this LearnLux Money Minute.