GameStop (NYSE:GME) stock is pulling back after its recent surge. But by-and-large, not much has changed for it. As with AMC Entertainment (NYSE:AMC), a core base of retail traders (“Apes,” as they sometimes call themselves) continue to hold onto their GME stock.
To keep these investors happy and to remain in the headlines, GameStop has a plan. Besides moving along with its digitalization efforts, the retailer is chasing opportunities in the fast-growing area of NFTs (non-fungible tokens) and other blockchain-related ventures.
However, don’t expect this move into to be something that, over the long-term, will help GameStop sustain its current market capitalization of $15.9 billion.
Instead, the shares are still likely to tumble in the future. At some point in time, the self-described “Apes” will take profits. That may happen when the stock market next undergoes a harsh correction. Or it could occur gradually, as more investors realize that the company will not grow into its presently inflated valuation for years, if it ever does.
In short, with no change to the story, investors should cash out of the shares before the retail traders finally do. If you don’t have a position in the name, avoid it.
Don’t Get Too Excited About GameStop’s Emerging NFT Catalyst
Late last month, buzz around the company’s move into NFTs and other Web 3.0 (blockchain) ventures began to build up. As more investors became aware of the company’s plans to build an NFT marketplace, investors bid up its shares for a couple of weeks.
More information is still coming out about the company’s NFT venture. For example, there are rumors that it will be powered by Loopring’s (CCC:LRC-USD) blockchain. New, confirmed developments may help spark a few more pops by the seemingly unsinkable meme stock.
But it may be a stretch to say that GameStop’s blockchain-related endeavors will prevent the stock from experiencing what I’ve called its “inevitable capitulation.”
There are two reasons for that. First, while overall NFT sales in the last fiscal quarter alone came in at a staggering $10.7 billion, only time will tell if its popularity will remain so elevated. While the skeptics have been proven wrong about cryptocurrencies, the jury is still out about whether NFTs are a fad or here to stay.
Second, assuming NFTs are not a fad, who’s to say that GameStop’s proposed marketplace will be one of the most popular offerings? Companies like Coinbase (NASDAQ:COIN) that are already providing crypto brokerage services seem most primed to take advantage of the NFT trend.
To top it all off, even if GameStop is successful in NFTs and in e-commerce, there’s still another factor that could sink it.
Even Redditors May Not Wait for GameStop to Grow Into Its Valuation
The largest risk facing GME stock right now is that the retail “Apes” still holding the stock will grow impatient and sell their shares. That would cause the name to tumble to a valuation that’s more in line with the company’s actual value.
But NFTs could keep becoming more popularity. And GameStop in theory may be able to parlay its name recognition, plus some of its $1.72 billion of cash, into building an NFT platform that generates a high level of transaction revenue for the company. But at best, these efforts, plus the retailer’s pivot to e-commerce, will enable it to “grow into its valuation.”
In other words, these initiatives, assuming they both pay off, won’t make the stock more valuable than it is today. With several years likely to pass before the company can catch up with its valuation, traders will grow tired of waiting for that to happen.
Once the meme crowd leaves the scene, only investors who care about companies’ fundamentals will be interested in buying the shares. As a result, the stock will trade more in-line with GameStop’s fundamentals.
That, in turn, could cause the shares to fall to the levels predicted by analysts. According to The Wall Street Journal, their average and median price targets on GME stock are $71 and $37, respectively.
The Shoe Is Still Set to Drop for GME Stock
The company’s latest efforts may end up being successful. In theory, that may help it sustain its current valuation.
Nevertheless, the shares aren’t a buy at this point. With the meme crowd likely to bail before the company’s ambitious efforts begin to pay off, avoiding GME stock is still your best move.
On the date of publication, Thomas Niel 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.
Thomas Niel, a contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.