Shares of GameStop (NYSE:GME) went ballistic again. On Thursday morning, GME stock rallied to a high of around $184, just weeks after crashing from a January high of $483 to a low of $38.50. While some believe Reddit may have been the catalyst for the move, there’s also hope the down-and-out retailer is turning things around.
All after GameStop announced its Chief Financial Officer, Jim Bell will step down on March 26.
“The CFO exited the company and there’s talk of the company finally transforming from a brick and mortar to deploying their product in a digital way, and this is why we believe the stock shot up at the end of the day today,” said Gust Kepler, chief executive of BlackBoxStocks, as quoted by The Independent.
At the same time, there’s speculation Ryan Cohen, co-founder of Chewy (NYSE:CHWY) and the GME board may have forced the move to transition online quicker.
However, I wouldn’t recommend chasing the rally. And if you choose to, don’t risk more than you can afford to lose. Remember, the stock could come down as fast as it went up.
GameStop May Have Big Plans for Change
For some time GME stock has struggled to stay afloat. In December, the company reported revenue of $1 billion, a 30.2% drop year over year, with a net loss of 53 cents. However, the company did see a 257% increase in e-commerce sales for the quarter, which would explain why it wants to transform its business model so desperately.
After all, the video game industry is changing – and fast.
Video game spending in the U.S. for 2020 was $56.9 billion, up 27% year over year, according to NPD Group. Sales hit $7.7 billion just in December. In addition, analysts say that by 2022, gaming could earn up to $196 billion in revenue. Growth is being charged by millions of gamers buying games online, or playing games on their mobile phones. Either GameStop gets in front of that, or they’re done.
GameStop Embracing eSports
The esports boom appears unstoppable. By 2022, the industry could be worth up to about $1.8 billion. By 2025, according to Research and Markets, it could be up to about $3 billion. Plus, the numbers of gamers are only growing. According to Business Insider, the audience could grow to 646 million by 2023.
Even industry giants, like Activision Blizzard (NASDAQ:ATVI), Take Two Interactive (NASDAQ:TTWO), Electronic Arts (NASDAQ:EA) and Draftkings (NASDAQ:DKNG) are taking part.
According to Investorplace contributor Chris Markoch, “The company has apparently discussed the idea of forming ‘home grown e-leagues’ in local areas. The plan would be to rely on drawing gaming enthusiasts to the store to watch events. Another idea is to redesign stores to embrace the store’s core offerings, which is retro hardware and games.”
The Bottom Line on GameStop Stock
At the moment, there’s a good deal of excitement surrounding the release of the company’s CFO. At the same time, there’s speculation Ryan Cohen, co-founder of Chewy and the GME board may have forced the move to transition online quicker.
We know video game demand and growth has been explosive. Plus, we know GameStop may get involved in the fast-growing world of esports. However, before jumping into the gaming stock on hope, let’s see some plans in action first. Let’s see if the company can get its act together and drive growth. If not, investors are wasting their investment on hope.
Again, I wouldn’t recommend chasing the rally. If you choose to, don’t risk more than you can afford to lose. Remember, the stock could come down as fast as it went up.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article. A contributor to InvestorPlace.com, Ian Cooper has been analyzing stocks and options for web-based advisories since 1999.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
