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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 08:19
uk.investing.com/analysis/gamestop-with-new-management-is-this-reddit-darling-a-stock-worth-betting-on-200496310
GameStop: With New Management, Is This Reddit Darling A Stock Worth Betting On?
By Investing.com (Haris Anwar/Investing.com)   |  Sep 13, 2021 08:19
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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 (6)
Dima Bedin
Dima Bedin Sep 15, 2021 10:16
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Well, watever, thank you GME for my new house! I will always love you!
Joe Parni
Joe Parni Sep 13, 2021 18:11
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Not ONE mention of short interest, naked shorts, or anything related to the manipulation of this stock by hedge funds and market makers, absolutely embarrassing take, you didn't even mention GME WAS GREEN AFTER EARNINGS?! it's so rare for a stock to do that, what does it matter if it dipped 4% on Friday? It's up 20% on the fortnight before. Utter nonsense
Christopher Hendry
Christopher Hendry Sep 13, 2021 18:11
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The article was about the actual company more than the shares, so there's no need to mention all the things you've listed as they're external to this.The article is looking at it as an investor, where it's way over valued for the current state of the business (though hopefully RC will help it grow into it). You're looking at it as a trader, which is where the price is currently being driven from and where the things you mention are both highly important and the reason it's so far from an investors price point.
James Pearce
James Pearce Sep 13, 2021 18:09
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oh okay then....this will age well.
Min Kyaw Swa
Min Kyaw Swa Sep 13, 2021 18:09
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hi 2d
Min Kyaw Swa
Min Kyaw Swa Sep 13, 2021 18:09
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joe palmer
joe palmer Sep 13, 2021 15:30
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What are your thoughts on the short positions held by multiple funds?
 
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