I get it, Reddit army. I just don’t feel the same way about GameStop (NYSE:GME) stock that you do.
But I understand where you’re coming from. I’ve got great memories of hitting up my local GameStop store and looking for new games. Just like I have memories of browsing Blockbuster for a new movie.
And I am very sympathetic to the notion of sticking it to hedge funds who short stocks. I hate shorts in general. There’s something about the notion of betting against a company that doesn’t sit well with me.
So for those and other reasons, I’d love to see GameStop flourish for years to come. I’d love to see GME stock continue to move higher and be a solid growth or value play.
It’s a good dream. But I just don’t see it happening.
It’s Been Nearly a Year …
Remember when all this GameStop–or Gamestonk–stuff started?
Fresh off the heels of its nasty third-quarter 2020 earnings report, GameStop announced three new members to its board of directors on Jan. 11. All of them were Chewy (NYSE:CHWY) executives, including co-founder Ryan Cohen.
“We believe the Company can enhance stockholder value by expanding the ways in which it delights customers and by becoming the ultimate destination for gamers,” Cohen said in the announcement. “Alan, Jim and I are committed to working alongside our fellow directors and the management team to continue to transform GameStop.”
It didn’t take long for GME stock to get rolling then, fueled by retail traders on Reddit’s r/WallStreetBets subreddit. By the end of the month, GameStop peaked at $483 before quickly falling back.
All of that was at the expense of hedge funds like Melvin Capital and Citron Research (the latter which famously called traders “suckers” for buying GME stock). So, Reddit traders felt pretty good about themselves. Even though GameStop hadn’t quite made it to the moon, the r/WallStreetBets crowd definitely made an impact.
And it was great for GameStop, too. The company used its crazy climb in market capitalization to pay off its debt. That’s huge.
Let’s Look at GME Stock Now
The Reddit crowd jumped onto GameStop for two reasons – to stick it to the hedge funds and because they love the company. (Well, I’m sure there are some who just are looking to make money, which is fine. That’s what you do in investing, after all.)
As we already pointed out, the hedge funds took a loss on this one. And I’m sure that plenty of Reddit’s investors made money.
But I’m not sure that GameStop’s is marginally in better shape today than it was a year ago.
Sure the stock price is up, trading at more than $200 at the time of this writing. And the company paid off its debt. The company expanded its Nevada fulfillment center, and it recently announced plans to hire 500 for its new customer service facility in Florida.
But the financials are still a mess. Despite everything that’s happened in the last year, GameStop still can’t make a profit.
In its most recent quarter (Q2 2021) GameStop reported an increase in sales, to $1.18 billion versus $942 million the previous year.
But it also recorded a net loss of $61.6 million. Granted, that’s better than the $111 million the company lost in Q2 2020, but it’s still a loss. The loss per share ended up being 85 cents.
Now, numbers can pretty much be made to say anything you want them to. Bulls will point to the quarterly report as evidence that the company is coming closer to getting out of the red. Bears will say that it’s still losing money hand over fist.
I guess on this one, you can call me a bear.
The Bottom Line on GME Stock
GameStop is certainly making efforts. A few months ago it posted a job listing that hinted at a NFT marketplace. And a more recent job posting, it’s looking to hire a “head of Web3 gaming” as part of its efforts to offer an Ethereum-based (CCC:ETH-USD) Web 3 arm.
Those both sound cool. But they also seem as if the company is grasping at straws and hoping to find something that sticks.
The reality for GameStop is that it will have a huge problem trying to remain relevant as a retailer as brick-and-mortar store continue to fall out of favor.
If you’ve made money on GME stock, congratulations. But if you’re still holding GME stock, I don’t see the long-term future. The only way I would trade GameStop these days is as an options trade, and even those are pretty risky.
But maybe that’s just part of the appeal.
On the date of publication, Patrick Sanders was long ETH. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.