Retail investors are betting on GameStop (NYSE:GME) once again because they expect the company to make a stellar comeback. However, given the company’s high debt and unstable cash flows, analysts expect its stock to tumble in the near term. Alternatively, established mall-based retail companies Gap (GPS), and Foot Locker (NYSE:FL) have reported substantial improvements in their financials in their last reported quarters, and we think are well-positioned to deliver higher returns in the near term.Video Game retailer GameStop, Inc. (GME) is famous for kickstarting the “meme” stock frenzy, popularized by the Reddit community Wallstreetbets. GME was targeted primarily by retail investors earlier—who overlooked the company’s surmounting debt, unstable financials and inadequate cash flows—because it was heavily shorted by hedge funds. Shares of GME have soared 4,219.6% over the past year, and 1034.9% year-to-date. In fact, the short squeeze has caused a $4.50 billion loss by hedge funds so far this year.
However, the current market volatility and rising inflation are causing investors to focus on stocks that could offer relatively steady returns. Analysts expect GME to hit $70 soon, indicating a potential 67.35 decline from its last closing price of $213.82. Big-short investor Michael Burry recently warned retail investors regarding an impending “Mother of all Crashes” through a now-deleted Twitter post.
Given this backdrop, we think meme stock GME is best avoided now. However, many retail companies are regaining traction amid the fast-paced economic recovery as consumers opt for in-person shopping over e-commerce purchases following more than a year of social distancing. As such, established mall-based retailers, The Gap, Inc. (GPS), and Foot Locker, Inc. (FL) have reported impressive year-over-year earnings growth in their last reported quarters and we think are poised to grow further in the coming quarters. So, it could be wise to bet on these stocks now.