📈 69% of S&P 500 stocks beating the index - a historic record! Pick the best ones with AI.See top stocks

GameStop Stock Worth Considering for Another Run in 2023?

Published 01/06/2023, 01:21 AM
GME
-
  • GameStop shares have undone most of the rally from the past two years.
  • Yet shares are trading along a strong line of resistance.
  • Investors have a lot to weigh up heading into 2023.
  • The legendary meme stock GameStop (NYSE:GME) has had a long run these past two years, but it has slowly but surely started to make its way down a seemingly unending slide since August. Much of the volatility that has characterized its track record in recent years has dissipated, this volatility having come during the lockdowns and the retail trading craze.

    As the first meme stock ever, driven in large part by retail traders on Reddit, GameStop served as a prime example of how identifying a short squeeze in a beaten-down stock can work in your favor if you play your cards right. However, looking at the year ahead, investors have to wonder if its best days are behind it, considering we may be looking at a more normalized valuation now that the meme trend seems to have run its course. To be sure, there are safer companies out there due to a reversal in fortunes.

    Mediocre Earnings

    With more scrutiny being applied to a company’s numbers, it’s understandable that GameStop’s most recent report from last month failed to impress. Investors would have been hoping for an upside surprise to justify a Santa Claus rally but were left wondering if they should sell for the tax benefits. The company posted a loss of -$0.31 per share, even lower than the already projected loss of -$0.28 per share.

    This could have still been overlooked if we saw a steady sales revenue; however, GameStop was also disappointed in this aspect. GameStop posted a sales revenue of $1.19 billion for the third quarter against an expected $1.25 billion. On a year-over-year basis, it also showed a contraction of almost 9%.

    Now you would think that the meme stock craze would have set the company to take advantage of the situation and use the short squeeze to chop off a good majority of its debt load. However, there seems to be a pattern where meme stocks like GameStop and even AMC Entertainment Holdings (NYSE:AMC) have both failed to capitalize on this situation.

    Still, management tried to remain optimistic, saying last month that “long-term debt remains limited to a low-interest, unsecured term loan associated with the French government’s response to COVID-19.” While they may be striking a bullish tone, it doesn’t seem like investors are willing to buy into it as we head into 2023 and shares hit their lowest point since February 2021.

    The Bull Case

    Despite hitting quite a few bumps this past year, this stock has some positive aspects that can’t be overlooked. The company has been reducing expenses, and the video game industry is on the up. November saw video game sales mark their first industry-wide year-over-year gain in more than a year when they logged a 3% increase as holiday shopping started to bring sharp rebounds in consoles and accessories.

    Technically, investors with a risk appetite will be sitting up too. GameStop’s shares are trading along long-term support levels at the $17-20 mark. This is where they bounced during similar bouts of weakness in March and May last year, and an RSI of 30 points to them being extremely oversold.

    Looking at the overall picture, it is best to stay cautious around GameStop in 2023. We are looking at most likely a bearish year for the stock, with the caveat that GameStop remains the king of the meme stocks where anything can happen, especially if tech stocks start to recover.

    Short interest remains elevated at 20%, so it’s not outside the realm of possibility to see another triple if not quadruple, percentage run in the months ahead. In the meantime, though, buyer beware. Investors getting in on the long side would be betting against billionaire investor Carl Icahn who’s been holding his short position since early 2021.

    Original Post

Latest comments

Loading next article…
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.