As many have pointed out in recent days, there’s little doubt that the short squeeze of GameStop (NYSE:GME) stock is over. Indeed, the shares are likely to keep tumbling in the near term and they could drop in the medium term as well.
But that doesn’t mean that the company itself is a “dead man walking” or that the shares will not be worth buying at some point in the future, after they lose a great deal more ground.
Indeed, I believe that if the company develops a good strategy and executes well on its plan, GameStop could potentially make a huge comeback. As a result, at some point its shares could be worth buying again.
Could GameStop Become an Online Tech Powerhouse?
In the last decade, the number of tech gadgets jumped tremendously. Smartphones and smartphone accessories, smartwatches, drones, virtual-reality glasses and 3D printers are just some of the technology that has proliferated a great deal since 2010.
Yet no company has become the go-to option when it comes to ordering technology online. Yes, Newegg, eBay (NASDAQ:EBAY) and Overstock (NASDAQ:OSTK) probably sell their share of tech via their websites, as do, obviously Amazon (NASDAQ:AMZN) and Best Buy (NYSE:BBY) and, to a lesser extent, Walmart (NYSE:WMT) and Target (NYSE:TGT). But it seems to me that none of them is truly dominating the online retail tech market.
As a result, there is room for GameStop to greatly increase its online sales of technology products. And the company does not have to be limited to selling video games and video-game equipment online. Indeed, according to NBC, it’s already selling PC desktops, “unlocked and refurbished cell phones from Apple and Samsung,” as well as TVs and “gadgets like drones and hoverboards.”
GameStop’s decision to add three top Chewy (NYSE:CHWY) veterans to its board last month indicates that the retailer intends to beef up its online business. And I do think that the new board members can help GameStop adopt a strong online strategy.
Can GameStop Become a Mini Best Buy?
In the brick-and-mortar retail business, Best Buy is currently the only very strong player. GameStop could become, at least, a strong runner-up in the category.
After all, the latter retailer does have some important assets that can help it attain that position. Specifically, it already has fairly high name recognition, a sizable customer base that’s enthusiastic about technology, tech-savvy employees who can answer questions about complicated products and, of course, many brick-and-mortar stores.
Speaking of its brick-and-mortar stores, once the pandemic ends, those locations can host e-sports tournaments. By hosting such events, GameStop would bring many potential customers into its stores. Once again, the retailer already appears to be embracing this concept.
The Bottom Line on GME Stock
As I stated at the beginning of the column, GameStop’s shares are likely to keep tumbling in the near term and could drop further in the medium term as well.
Once the shares reach $20 to $30, I believe that the stock could be worth buying if the company’s strategy appears to be bearing some fruit.
Meanwhile, there are multiple signs that GameStop does indeed have some potential. Specifically, famed investor Michael Burry bought shares of the company in 2019 when the stock was below $4. And according to Yahoo Finance, as of the end of the third quarter, Blackrock (NYSE:BLK), State Street (NYSE:STT) and Morgan Stanley (NYSE:MS) owned 12.3%, 3.7%, and 2.86% of the shares of GME stock.
Finally, over the 12 months that ended in October, GameStop’s operating income came in at $96.7 million, while its top line was $7.3 billion, versus $6.45 billion for the year that ended in January 2020.
Those who own GME stock should sell their shares now. But risk-tolerant investors looking for a retail turnaround stock should consider buying the shares if they sink to $30 or below and the company shows signs of executing well on a viable comeback strategy.
On the date of publication, Larry Ramer did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Larry Ramer has conducted research and written articles on U.S. stocks for 14 years. He has been employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing columns for InvestorPlace in 2015. Among his highly successful, contrarian picks have been Plug Power, solar stocks, and Snap. You can reach him on StockTwits at @larryramer.