Gamestop (NYSE:GME) is still excellent for day trading. However, it’s a perilous proposition for the long term, with stability for GME stock looking like a pipe dream at the moment. The meme stock started the week on Mar. 15 with a 4.9% gain.
After skyrocketing over 550% in the past three weeks, though, GME is headed downward today, now at around $205 per share. However, it remains clear that the r/WallStreetBets forum on Reddit is still a force to be reckoned with. Whether it’s AMC (NYSE:AMC) or Blackberry (NYSE:BB), we’ve see traction for these spent forces once again.
So, there’s still money to be made through day trading stocks like GME. But with such a bleak long-term story, it has a high risk, high return dynamic.
Of course, at this point — if you are trading these meme stocks — you aren’t exactly wary of risks. But investors should know that, fundamentally, there’s nothing about GME to suggest it’s a viable investment.
What’s Going on with GME Stock?
It may seem like the current rise in GME stock is down to Reddit users once again. However, there’s a method to the madness. Last week, Gamestop announced a strategic planning and capital allocation committee to restructure the gaming merchandise retailer. On most occasions, such announcements would cause a minor blip in the markets and nothing else.
But this is GME we’re talking about. Folks should be used to its wild swings thanks to both retail investors and Redditors who are eager to squeeze hedge funds. Previously considered dead in the water, this video-game retailer has staged a miraculous recovery, once nearly touching a high of $500 a pop.
Granted, it has lost a lot of steam. But the wild swings persist. On Jan. 27, the stock closed at $347.51 per share and even managed to climb to $483 on the following day. However, within three days, shares dropped to close at $90. Hence, playing with GME is not for the faint of heart. If you’re not willing to stomach that kind of risk, then it’s futile to pour your capital here.
No Point Looking at Fundamentals
If you have a fair understanding of the GME stock story, you know that fundamentals have little-to-no bearing on the stock’s fortunes. Sales have been falling consistently over the last ten years, a secular trend that ties into the wider issue of brick-and-mortar stores versus e-commerce. Trailing 12-month (TTM) data shows a net loss of $270 million. There is nothing to suggest the company will return to profitability this year.
Moreover, the company missed revenue estimates by $84.4 million in the last quarter alone, according to Seeking Alpha. It’s nothing new for the retailer, which has had just two positive quarters in the last six. However, could it be in for a turnaround? Analyst data doesn’t reflect this, with a forecasted drop of 19.9% in revenue for fiscal 2021.
You can blame several factors. But ultimately, the company is running an archaic business model and the novel coronavirus only added to its woes. Stay-at-home instructions led to consumers buying video games digitally instead of hard copies. Now, Gamestop is stuck with a lot of inventory and low sales.
GME has not turned a profit since 2017 and its sales have fallen consistently. The company has grown its offerings to include collectibles and novelty merchandise, but it has done little to dent the bottom line. Further, according to The Washington Post, the company “has gone through five chief executives in that time.” So, stability at the top is also virtually absent. Since George Sherman took charge in April 2019, the company has shuttered 1,000 stores. As it continues to burn through cash, you can expect more closures.
Overall, this video-game retailer’s fortunes remain largely the same as at the height of the pandemic. Struggling to survive, GME stock became part of a unique investing experiment that is one of finance’s biggest stories. But that doesn’t mean it’s out of the woods.
All in all, you can still make a nice return by following Reddit users on this stock. However, it’s still best to avoid this name if you are risk-averse.
On the date of publication, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. Faizan has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. Faizan does not directly own the securities mentioned above.