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GameStop: With New Management, Is This Reddit Darling A Stock Worth Betting On?

By Investing.com (Haris Anwar/Investing.com)Market OverviewSep 13, 2021 02:08PM ET
www.investing.com/analysis/gamestop-with-new-management-is-this-reddit-darling-a-stock-worth-betting-on-200601680
GameStop: With New Management, Is This Reddit Darling A Stock Worth Betting On?
By Investing.com (Haris Anwar/Investing.com)   |  Sep 13, 2021 02:08PM ET
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GameStop (NYSE:GME), the video game retailer elevated from obscurity (literally and figuratively) by the Reddit crowd and still favored by some retail investors and traders, has lost its momentum after an eye-popping rally this year.

GME Weekly TTM
GME Weekly TTM

Over the past 52-week period, shares have gone from a low of $6.43 to a high of $483, an insane escalation of more than 7,400%. During January, 2021, the stock rocketed up 1,600% before slumping, but since then, shares have been stuck in a range, with bulls holding their positions in hopes of a turnaround.

Though the stock of this brick-and-mortar electronics vendor is still up more than 900% for the year, it appears there are no other short-term catalysts that could support additional gains. The stock closed on Friday at $190.41, after falling 4%.

The latest evidence as to why activity is so subdued on the stock came last week when the Texas-based company reported its second-quarter earnings. The struggling video-game retailer posted a wider-than-expected second-quarter loss and took no questions afterward during its call with analysts.

GameStop's quarterly performance further strengthened the argument that the retailer still doesn’t have a credible turnaround plan which investors could use to justify their faith in the stock. The company has reported red ink in six of the past eight quarters, including a loss of $0.76 a share in the latest period, wider than the $0.67 which was an average estimate by analysts.

The company has shuttered hundreds of stores amid falling sales and is now trying to compete even more directly with online retail giant Amazon (NASDAQ:AMZN). Ryan Cohen, an activist investor who became GameStop chairman after building a 13% stake, told investors in June that he won’t disappoint them, but markets are still waiting.

The same month, GameStop named former Amazon veteran Matt Furlong as its chief executive officer. Furlong led GameStop’s earnings call on Wednesday, his first time speaking publicly since becoming CEO. However, as mentioned he didn’t take questions and said the company wouldn’t provide guidance, as has been the case in recent past quarters.

No Justifying Fundamentals

Analysts on Wall Street have been warning investors not to buy GME stock. The rationale: its current value isn't justified based on fundamentals. The video-game retailer is currently covered by four analysts, down from nine at the beginning of the year.

GME Consensus Estimates
GME Consensus Estimates

Chart: Investing.com

As of Friday, there are two hold and two sell ratings on GameStop, according to an Investing.com poll, with a 54% downside risk and an average price target on the stock of $88.33.

While reiterating its own hold rating on GME, Jefferies said it’s still waiting for more information about the strategic direction of the company. Their note said:

“We are closely monitoring 2 specific areas — infrastructure investments and clues as to the future scale of a digital business; and personnel changes, as a signal for changes in strategic direction guided by a new board and CEO.”

Retail traders on Reddit have been supporting the shares since last year, even though many Wall Street analysts believe the company is highly overvalued.

“This stock is 90% psychology/momentum and 10% fundamentals, so in many ways it doesn’t matter what the quarterly results are,” Vital Knowledge’s Adam Crisafulli said in a note, cited by Bloomberg news.

Bottom Line

GameStop continues to remain a highly volatile stock with few details available about its turnaround plan. Though its meteoric rise this year significantly improved its financial health, there is no guarantee its business will be able to take on, let alone compete, with tech behemoths, including Amazon.

GameStop: With New Management, Is This Reddit Darling A Stock Worth Betting On?
 

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GameStop: With New Management, Is This Reddit Darling A Stock Worth Betting On?

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Comments (9)
Ori The Ape
Ori_The_Ape Sep 14, 2021 5:53AM ET
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"Though its meteoric rise this year significantly improved its financial health, there is no guarantee its business will be able to take on, let alone compete, with tech behemoths, including Amazon" How nice of you to ignore 2021 data. Not only do they compete with amazon with their new fulfilments centers (700k SQ FT one in Pittsburgh, 530 SQ FT one in Nevada), Their customer service is top tier, they treat their workers like actual humans, Their same day delivery is way faster, their prices are cheaper, the variety of items only increase as they transform into E-commerce technology. There are a million and one reasons to be bullish on them, the bearish thesis is very weak against them if you use updated info
Jeffrey Vose
Jeffrey Vose Sep 13, 2021 3:30PM ET
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Dont own any of this. I just find the mental gymnastics that these kids use for buying this quite entertaining.
Ori The Ape
Ori_The_Ape Sep 13, 2021 3:30PM ET
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Bears in shambles
Mihai Razvan
Mihai Razvan Sep 13, 2021 2:47PM ET
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look at his face .. slave of hedgefunds noob investor
Vic Welly
Vic Welly Sep 13, 2021 2:47PM ET
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Tony Ephraim
Tony Ephraim Sep 13, 2021 2:14PM ET
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How can I start trading
ja aa
ja aa Sep 13, 2021 2:11PM ET
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Bears and shorts have lost, and the FUD isn't working. the system has been manipulated and rigged for decades. Reddit has found and exploited the underlying failures in the system, and that same system will be its own demise.
Ryan Schleiff
Ryan Schleiff Sep 13, 2021 2:11PM ET
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Right on schedule. Stock up 6.5% today as of this comment. SHF’s panicking and need their media pals to try to get people to sell.
Tamer Ahmed
Tamer Ahmed Sep 13, 2021 2:11PM ET
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Sean Hurley
Sean Hurley Sep 13, 2021 10:54AM ET
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0 long term debt and almost $2 billion in cash on hand. Revenue up 25% in most recent quarter. Why not mention these things to at least seem like there isn't a bias?
Sean Hurley
Sean Hurley Sep 13, 2021 10:45AM ET
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0 long term debt and almost $2 billion in cash on hand. Revenue up 25% in most recent quarter. Why not mention these things to at least seem like there isn't a bias?
Ori The Ape
Ori_The_Ape Sep 13, 2021 10:45AM ET
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That'd go against the MSM narrative
Pat Mathieu
Pat Mathieu Sep 13, 2021 3:43AM ET
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Missing words in this article: "Short squeeze"
Erik Esparza
Erik Esparza Sep 13, 2021 3:43AM ET
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Indeed...
 
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