Generally speaking, the consensus among both InvestorPlace writers and the analyst community is that GameStop (NYSE:GME) stock at its present valuation is divorced from the fundamentals.
Frankly, it’s difficult to argue against this thesis. Indeed, I’d go a step further and say that it’s irresponsible to give too strongly an opinion about GME stock in either direction.
Sure, I understand the enthusiasm about the now iconic video game retailer. Basically, GME stock is Wall Street’s Cinderella story. After being beaten down by mainstream analysts and the consumer economy at large – because let’s face it, we’re not clamoring for more brick-and-mortar retailers – GameStop is at the center of a remarkable and unprecedented recovery.
Psychologically as well, it’s satisfying to see the underdog finally get its day. Better yet, we also love when the bad guys get their karmic justice. After watching Jason Vorhees brutally murder innocent camp-goers, we cheer when the protagonist sends the hockey-mask-wearing psychopath to perdition. And that’s what happened to some of the short-selling firms who targeted GME stock.
The predator became the prey. Finally, Camp Crystal Lake is calm, the peaceful music a perfect setup for one final jump scare before the scene cuts to black.
As you know, the running theme among classic slasher films is that so-called outsiders – the overweight, the unattractive, the promiscuous, the minority – always gets killed. Indeed, the last Friday the 13th movie was self-aware about this glaring inequity. But what’s interesting is that in many slashers, a happy ending doesn’t exist for anyone.
In other words, the bad guy always wins. Jason jumps out of the water and drags the heroine to her death. Freddy Krueger materializes once more, providing a stark harbinger to the survivors that the sequel will not be too kind to them.
What does this have to do with GME stock? Pretty much everything.
GME Stock Is at a Discomfiting Crossroads
While most horror films these days fill plot holes with jump scares hoping that you won’t pay attention, the best work in this genre build tension. And that comes into play at the end of the film. Even for the campy iterations, the audience is left wondering, is this really the end?
A great director can use this knowledge to tremendous effect. One of the most powerful tools available is to give the audience something they would probably never expect; for instance, that Jason really does just die, never to be resurrected again (to the chagrin of Hollywood execs).
And this segues into the ultimate tension behind GME stock. I am truly unsure where this is headed. My gut tells me that shares will crumble because come on – how long can the divorce from the fundamentals last? On the other hand, social media loves GameStop, the modern equivalent of “Blue Horseshoe loves Anacott Steel.”
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Forgive me for deeply referencing Hollywood but even the technical chart of GME stock is playing out like a movie. On one hand, you can clearly see the extreme volatility in shares, at one point closing above $347. On the other hand, you can also discern what appears to be a bullish pennant formation developing.
Personally, I see two pennants, one inside of the other. It really begs the question: can lightning strike twice for GME stock?
At this price level, I wouldn’t bet against it nor would I bet on it. Usually, it’s highly unlikely that speculation alone can drive up a flawed investment, let alone twice. At the same time, social media has firmly grasped onto the GameStop narrative. They mean business and even the Street respects that; hence, the decline in the short interest against GME stock.
You Can’t Keep a Good Bad Buy Down for Too Long
The main reason why a new Friday the 13th movie was never released following the 2009 remake is a bitter legal battle between franchise producer Sean S. Cunningham and the original film’s writer Victor Miller. Supposedly, though, a new sequel is in the works, which truly is an inevitable development.
You see, a great horror franchise is a license to print money. People want to be all cool for school and say that rehashes are lame. Please. Audiences loved the 2018 version of Halloween. They will come to watch the sequels Halloween Kills and Halloween Ends.
And no, Halloween will never end. There’s too much money involved.
That brings me to GME stock. It’s more than possible that you can make some quick cash from this potential bullish setup. But at some point, the fundamentals will matter. You might make it to the end of the film without an axe splitting your head in half. Congratulations.
But just know that there are many, many sequels ahead. If you’re alive now, you might want to think about keeping it that way rather than risking another sleepless night on Elm Street.
On the date of publication, Josh Enomoto held a straddled position on GME.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
