Despite the critics and naysayers, GameStop (NYSE:GME) stock continue to defy expectations and the broader market.
Consider that the stock of the Grapevine, Texas-based video game retailer is down 8% this year compared to a 18% decline in the benchmark S&P 500 index, and a drop of 26% in the technology heavy Nasdaq exchange. In the past month, GME stock has risen 23%, coming off a bottom of $89 a share. Not bad for the original meme stock that analysts had given up for dead, having predicted that the stock would come crashing back to earth as investors came to their senses and grew more risk averse.
Defying The Odds
Perhaps most impressive is GameStop’s continued outperformance when measured against other meme stocks. So far this year, movie theater chain AMC Entertainment’s (NYSE:AMC) share price has fallen 55%, former smartphone maker BlackBerry (NYSE:BB) is down 38%, home retailer Bed Bath & Beyond (NASDAQ:BBBY) has declined 51%, and online brokerage Robinhood Markets (NASDAQ:HOOD) has collapsed 55%. And yet, GME stock is currently sitting near the same level it was at in December of last year when the current market downturn started to take hold.
Even the stocks of established, highly profitable, and well-respected companies such as Apple (NASDAQ:AAPL), Costco (NASDAQ:COST) and the Ford Motor Co. (NYSE:F) are down more than GameStop amid the current market rout. So, what gives? How to explain GameStop’s outperformance? This is, after all, a company that analysts compare to Blockbuster Video and have predicted will go bankrupt. The short answer is that the company has been able to tell a compelling turnaround story and continues to be led by entrepreneur and activist investor Ryan Cohen, who retail investors seem to trust.
On June 1, GameStop issued mixed first quarter financial results that showed improvements in some areas, notably the company’s shift to online and digital sales, and away from its traditional brick-and-mortar retail revenue. GameStop highlighted that its revenue in the quarter amounted to $1.38 billion, which was above the $1.32 billion consensus expectation of analysts. The company also emphasized that it sold $220 million worth of collectibles and toys during the quarter, up from $175 million a year earlier. However, GameStop still posted a net loss in Q1 of $157.9 million, or $2.08 per share, which was more than double the $66.8 million, or $1.01 per share, loss recorded a year ago.
GameStop no longer provides forward guidance related to its earnings. However, the company has announced plans to build on the success of its collectible sales by launching a non-fungible tokens (NFTs) marketplace. Details on the NFT marketplace, including a firm launch date, remain fuzzy. However, the timing of such a move is suspect given the current implosion of cryptocurrency prices and the collapse of the NFT market following last year’s bull run. However, fans of GME stock don’t seem to ask a lot of questions and continue to put their faith in Cohen, GameStop’s chairman and the architect of the company’s turnaround plans and push into e-commerce and crypto.
GME stock jumped more than 20% one day back in March after it was revealed that Cohen had bought an additional $10 million worth of the video game retailer’s shares. Retail investors seem to bid up the stock every time Cohen does or says anything related to the company.
Continue To Avoid GME Stock
At this point, GameStop is more of an oddity than anything else. Despite the company’s outdated business model, mounting losses, and ill-timed move into NFTs, investors continue to buy the stock and it continues to outperform the market. Investors seem to have blind faith in Cohen and continue to thumb their noses at the analysts that predict the company’s demise. But while GameStop might be performing better than most other meme stocks, it continues to trade in a volatile pattern and could fall just as quickly as it rises. For these reasons, investors would be best to stay far away from GameStop and not risk their capital on this notorious company. GME stock is not a buy.
On the date of publication, Joel Baglole held a long position in AAPL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.