- GameStop’s (GME) share price continues to slide lower, down 23% in the last month.
- The company’s earnings are as bad as ever with no signs that a turnaround plan is working.
- A proposed stock split is more of a dividend payment and could dilute GME stock.
A year on from the great meme stock craze of 2021 and shares of GameStop (NYSE:GME) remain as volatile as ever.
In the past month, GME stock has fallen 23% to now change hands at $126 per share. The video game retailer’s share price is 63% below its all-time high of $344.66 reached in January of last year when retail investors first executed a short squeeze on the stock. But while the investing world has largely moved on from the meme stock phenomenon that made phrases such as “diamond hands” and “to the moon” part of the lexicon, GameStop’s shares continue to trade in an erratic pattern that suggests people still don’t know what to make of the company.
| GME | GameStop Corp. | $126.79 |
Meme Fallout
To be sure, the fallout from the meme stock craze continues for GameStop. Several documentary films about GME stock’s epic short squeeze have been released in recent months, including one by HBO Max called Gaming Wall Street. At the same time, GameStop continues to deal with various lawsuits filed by both investors and contractors that claim they got burned by the company. The biggest legal action is a $30 million lawsuit filed by the Boston Consulting Group that claims it hasn’t been paid for the work it performed in “setting the company on a more sustainable path.”
At the same time, GameStop continues to try and rehabilitate its image coming out of the meme stock rally and turn around its flagging brick and mortar retail network that has essentially operated the exact same way since the company was founded in 1984. Leading the efforts to make GameStop more of an online video game retailer, or e-commerce company, is Ryan Cohen, who is one of GameStop’s biggest shareholders and now chairman of the company. Cohen has helped keep GME stock aloft in recent months by purchasing 100,000 additional shares of the company, bringing his ownership stake to almost 12%.
Bad Results
While Ryan Cohen is championed as a sort of pied piper by GME shareholders, there’s little evidence that his vision to morph GameStop into the “Amazon of gaming” is working. The company’s latest earnings, released in March, were typically bad. In the fourth quarter (Q4) of last year, which includes the holidays when video game sales are usually at their zenith, GameStop reported a net loss of $147.5 million, or $1.94 a share. That is in comparison to a profit of $80.5 million, or $1.19 per share, a year earlier. The company blamed the results on supply chain constraints and the omicron variant of Covid-19, which put a crimp in Christmas shopping. GME stock fell 8% after the Q4 print.
At its upcoming annual meeting on Jun. 2, GameStop plans to ask shareholders to approve a stock split. More of a special dividend payment than a traditional stock split, GameStop is proposing to give shareholders additional GME stock rather than a cash payment. The exact split ratio to be voted on hasn’t been announced. But GameStop’s management team has said the split is being done to increase the liquidity of GameStop shares. GameStop undertook a more traditional stock split back in 2007 when the share price was then hovering around $50.
Also at the annual meeting, shareholders will be voting on a new incentive plan for management that could see an additional eight million shares issued. Both the dividend payment and management incentive program could lead to GME stock being diluted in coming months, which is not good for mom-and-pop shareholders.
Why Buy GME Stock?
GameStop continues to be notorious for all the wrong reasons. While the company’s share price is prone to the occasional bounce on news, such as Ryan Cohen purchasing more stock, its earnings are weak and its share price, while up and down, continues to slide lower. With no indication that the company’s business will turn around anytime soon and with retail investors having moved on to greener pastures, it makes no sense for any investor to risk their capital on GameStop. GME stock is not a buy under any circumstances.
Disclosure: On the date of publication, Joel Baglole 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.
