GameStop analyst calls stock surge a pyramid scheme and says nobody cares about his $16 price target

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Pedestrians pass a GameStop store in New York.
Scott Mlyn | CNBC

After 19 years covering GameStop, Wedbush’s Michael Pachter is comfortable with his $16 price target on the stock and his relatively bearish view on the company. But he knows his opinion doesn’t matter right now.

“There’s not a single institutional investor who’s sitting back and waiting for me to weigh in on whether to buy at $300,” said Pacther, who has a neutral rating on the stock, in an interview on Wednesday. “We’ve long past the time where anyone who values my advice is involved in GameStop.”

Shares of the video game retailer more than doubled on Wednesday, topping $325. They’re now up over 1,600% since the beginning of the year. Meanwhile, the average price target among six analysts tracked by FactSet is $13.44, and it’s only that high because Joseph Feldman of Telsey Advisory Group raised his target to $33 last week.

GameStop is spiking after users of online forums on Reddit and other sites hyped the stock, which started the year below $19. The shares were heavily shorted by investors betting on a drop, and the rapid ascent has forced many of them to cover their positions by buying at a loss.

Pachter said what’s most astounding is the volume of trading. More than 170 million shares changed hands each of the past three days, and there are only a little over 73 million shares outstanding. That’s more than double its outstanding share count traded each day. For other companies Pachter covers, like Facebook and Amazon, the number is typically 1% to 2% per day.

“It’s just a feeding frenzy,” Pachter said. “There’s nobody in this stock based on fundamentals.”

GameStop, AMC and FuboTV over past week
CNBC

In his career, Pachter said he’s never seen anything like this, where action is being driven by crowd chatter. The closest thing he’s experienced was the dot-com bubble, when companies like Toys.com and Pets.com were flying, because there was “euphoria over the email accounts,” Pachter said.

Pachter also covers AMC Entertainment, which jumped 265% on Wednesday. That’s another highly shorted stock that’s being pumped in chat rooms. And he tracks streaming service FuboTV, which has jumped almost 70% in the past week on no real news and “another big short squeeze,” Pachter said.

With GameStop, Pachter said buyers are operating under the greater fool theory.

“The guys buying it at $300 think some greater fool will buy at $400, and so far the greater fools keep showing up,” he said. “It’s a pyramid scheme.”

WATCH: CNBC’s full interview with Chamath Palihapitiya on GameStop

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