Expect GameStop Stock to Continue Tumbling

I’ve long called the situation with GameStop (NYSE:GME) a case of waiting for the other shoe to drop. With its latest sharp dive lower, that “shoe -drop” moment appears to have arrived. Specifically, the legion of self-described “apes” that have kept GME stock punching above its weight have started to head for the exits.

Photo of the Gamestop (GME) logo On a Mobile Phone.

Source: Shutterstock / mundissima

After several false starts, it appears that the looming uncertainty is finally having a sustained impact on the markets overall. With investors no longer shrugging their shoulders and buying the dip, the “apes” are running scared. As a result,  expect them to continue stampeding out of the shares.

As Reddit’s r/WallStreetBets community bids adieu to GME stock, the share price is likely to continue sinking to a level that’s more in line with the company’s long-term prospects. Assuming that GameStop makes progress with its digital transformation plans, news about the company may temporarily slow down the decline of its stock.

Even if the “Meme Stock Saga” has one last hurrah,  it will probably not save the day completely for GME stock. So since GameStop’s “Game Over” moment is in full swing, it’s best to steer clear of its shares.

Omicron and Inflation Are Sending GME Stock Back to Earth

Initially, news of the latest Covid-19 variant, Omicron, didn’t seem to have the pro-GameStop meme crowd too worried. Although GameStop’s shares were falling, on Black Friday, when markets sank on news of this newest variant of Covid-19, the Reddit “apes” were HOLDing, and “buying the dip.”

At the time, GME stock was changing hands for just under $200 per share. However, Reddit traders LOLed too soon, as in the trading days that followed, the stock declined further. On Friday, it closed just above $172 per share. Omicron, plus the prospect of a more hawkish Federal Reserve, may just well be the perfect excuses for many investors to finally hit the “sell” button.

Worse yet, both these issues could cause further rockiness for stocks in the weeks ahead. Based on the latest U.S. jobs report, it’s looking more likely that the Fed will accelerate its tapering program, and raise interest rates in the coming year. Other upcoming economic information, like the next Consumer Price Index (CPI) data  scheduled to be unveiled on Dec 10, could make that scenario more likely.

If the markets keep tumbling, all “risk-on” assets, including GameStop, will feel pain, causing more Reddit traders to finally get the itch to sell.

At Best, Earnings Will Briefly Soften the Blow

After the market closes on Dec 8, GameStop will release its fiscal third-quarter earnings. Analysts, on average, expect its sales to climb 18% year-over-year. The mean estimate is calling for net losses per share of 52 cents, little changed from the net loss per share  of 53 cents during the same period a year earlier. In addition, the company may provide updates on its digital transformation plans and/or its plans to go into the non-fungible token (NFT) business.

Temporarily, any  positive news may  help  GME stock. It could enable the shares to spike one last time. But will good news win back the late-comers, the momentum riders, and the other fair-weather fans of this stock who have long left the scene? I wouldn’t count on it.

Positive developments may drive some of the apes to stay the course and hold onto their GME stock, as they once vowed to do. Still, a portion of these unique speculators may decide to sell their shares into strength. In short, very positive news could help slow down GameStop’s drop, but fail to jolt it back above $200.

The Verdict on GameStop

As is the case with AMC Entertainment (NYSE:AMC) stock now, as a critical mass of “apes” decides to sell their shares of GME stock, expect the latter name to stay in freefall mode.

Based on analysts’ price targets compiled by The Wall Street Journal, a reasonable price for GME stock may be $37 per share.

The company’s upcoming results could help prevent a freefall, but they probably won’t reverse the stock’s current downward trajectory. So as the “apes” flee the name, it’s not worth dabbling in GME stock.

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.

Article printed from InvestorPlace Media, https://investorplace.com/2021/12/expect-gme-stock-to-continue-tumbling/.

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