GameStop’s stupefying stock rise doesn’t hide its reality

Behind GameStop’s stock surge is the grim reality of its prospects: The video game retailer is floundering even as the industry around it is booming.

GameStop has been swept up in a battle between big-moneyed hedge funds betting against it and small investors trying to prop it up. That has caused GameStop’s share price to soar despite the shaky financials underneath.

Flailing companies like AMC Entertainment and American Airlines have likewise enjoyed a stock surge, but GameStop has been the primary battleground between the Davids and the Goliaths. Shares rocketed...