After two major meme-stock-driven gains in May and June, GameStop (NYSE:GME) stock has mostly been on the down and out. Having gained 48% year-to-date, it’s hard to call the 2024 performance of GameStop stock a disaster. This time last year, it traded slightly lower than today.
Keith Gill, the man behind the “Roaring Kitty” persona, used his notoriety surrounding the video game retailer’s stock, to make a little money on GME, announcing on Reddit June 2 that he’d made a $116 million bet on it. By June 6, they’d doubled in price, to $46.55. By June 13, Gill had sold all 120,000 call options, making a sizable gain.
Now, Gill has chosen to make a big bet on Chewy (NYSE:CHWY), GameStop CEO Ryan Cohen’s original masterpiece.
On July 1, filed disclosure forms with the SEC, indicating that he’d acquired a 6.6% stake in the online pet food retailer for $245 million. Its shares briefly jumped more than 10%. However, they closed July 3 trading, down nearly 12% from the stock’s closing price on June 28, the day before Gill’s announcement.
Even though I don’t have the time of day for GameStop stock, it’s a better bet than Chewy.
Here’s why.
Chewy Stock Down 36% in the Last Year
Over the past year, Chewy is down over 36%, compared to a nearly 2% gain for GameStop. I’m not surprised that GME is lapping the online retailer.
GameStop is a company without a tangible plan to fix its failing brick-and-mortar retail business, while Chewy appears to be following e-commerce 101 to get its business remotely profitable. Yet the former is the stock with gains to show for it over the past year.
Don’t get me wrong, I’m not a fan of either stock.
In January, I wrote that even though it’s been a public company for nearly five years, it’s generated cumulative losses of $637 million, demonstrating an inability to consistently make a profit.
While GameStop is hardly what you’d call a money-making machine, its accumulated deficit is $245 million as of May 4, considerably less than Chewy’s at $1.91 billion. Now, that can change in a hurry if either company experiences a surge in profits or losses in the coming quarters.
The point is, even though they both have trouble making money, Chewy, up until recent quarters, hasn’t for a very long time. In fact, according to S&P Global Market Intelligence, in the 2o quarters since going public in June 2019, it has generated an operating profit on six occasions, the most recent being Q1 2024, at $64.6 million.
As for GameStop, until Q2 2019, according to S&P Global Market Intelligence, it made a profit in every quarter over the previous five years. Ryan Cohen came into the picture in August 2020.
The Bottom Line on GameStop Stock
In mid-June, I suggested Cohen should invest GameStop’s $4 billion in cash in Berkshire Hathaway (NYSE:BRK. B) and LVMH (OTCMKTS:LVMUY), two hands off investments that would surely generate long-term returns for shareholders.
As much as I don’t think Cohen knows what he’s doing with GameStop, having $4 billion to invest at your disposal makes it a little easier to paper over the mistakes he’s made since getting involved four years ago.
For example, Buckle (NYSE:BKE) is a Nebraska-based retailer that has a penchant for paying special dividends each year. In January, it paid a special divvy of $2.50. In the four years before that, it paid out $10.55, plus a quarterly regular dividend of between 30 cents and the current payment of 35 cents.
With an enterprise value of $1.87 billion, he could pay a 50% premium for its stock — CEO Daniel Hirschfeld owns 31.9% of the shares, so Cohen would need his blessing for the deal to get traction with the board — for a purchase price of $2.81 billion, and Cohen would still have nearly $1.2 billion to invest elsewhere.
Except for a $16.2 million operating loss in Q1 2020, Buckle has made a profit in every quarter over the past decade. It might not be “collectibles” or “crypto” splashy, but it does what both GameStop and Chewy can’t, and that’s consistently making money.
As much as it pains me to say it, GameStop is a better speculative buy than Chewy at this point in the proceedings.
That said, I wouldn’t buy either.
On the date of publication, Will Ashworth 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.
