GameStop (NYSE:GME) stock bears are finally getting some solace.
The reason? Well, GME stock is down 14% in the last month. Plus, short-sellers are now wary of touching GME stock because of the billions they have lost in the last year shorting this one.
But is it the time to take profits and finally look elsewhere? That depends. If you are a short-term trader, then the prospects of another squeeze are dimming by the day. But on the other hand, if you have a long-term view, then GME stock has the resources to transform itself.
However, for your investment to bear fruit, you will have to wait for a long period.
The latest earnings report highlights this fact. Although revenues shot up year on year, it was not a monumental increase. The markets reacted as they have done each time earnings have been reported in the last year. Shares tanked.
But the bulls are arguing that you have to treat GME as a well-funded tech startup. While that may be true, the kind of time the company needs to transform itself is too much for the average investor. And why should you wait when there are so many enticing stocks out there.
Transformation Plan
GME stock dipped over 7% in extended trading after the embattled video game retailer reported its second-quarter loss. The disappointing announcement was met with disbelief from investors who had expected significantly better news given the stellar performance in the prior quarter.
For the quarter ended July 31, GameStop reported a net loss of 85 cents per share, comparing favorably to the prior year, where it lost $1.71 on an adjusted basis. Revenue jumped to $1.18 billion from $942 million a year earlier. The analyst consensus estimates predicted the video game retailer would lose 67 cents on revenue of $1.12 billion.
Nevertheless, investors hoped for better numbers. Plus, GameStop did not issue guidance as part of the earnings announcement, leading to further disappointment.
However, every time you felt the stock was down for the count this past year, Redditors came to the rescue. Along the way, the company took advantage, issuing a lot of equity to shore up its balance sheet and use the funds to transform its operations. Although the plan details have not been revealed, GME bulls take solace from the $1.7 billion in net cash at the retailer’s disposal to fulfill its mission.
The other thing worth noting is Ryan Cohen’s team. Most of the old guard has been pushed out, and in its place, we have executives like Matt Furlong and Mike Recupero, both of whom served in senior leadership positions in Amazon (NASDAQ:AMZN).
Plus, having Cohen at the helm is a double whammy because the Reddit crowd loves him; he is referred to as “Papa Cohen” by many GME stockholders. This is because he has been conscious of giving retail investors importance in the decision-making process.
Questions Surrounding GME Stock Remain
Despite all the positives, GME bulls cannot justify the premiums at which this company is trading. Retail investors bailed it out at the height of the pandemic. But they have very little incentive to remain involved after giving it a new lease on life. GameStop has the cash and the managerial team to transform itself. But it will take a long time for this to happen. Anyone hoping for a swift change will undoubtedly be disappointed.
Day traders hoping for a short squeeze should also consider one important statistic. GME short interest stands at just 11.9% as of this writing. The hedge funds have learned their lesson after Redditors forced a short squeeze multiple times this year.
Considering these factors, only an investor willing to wait for an extended period for the GME turnaround can justify maintaining their position in GME.
On the publication date, Faizan Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.
