A position in video game retailer GameStop (NYSE:GME) isn’t appropriate for everyone. Some investors could choose to take a chance on GME stock as long as they’re aware of the risks involved.
GME stock looks more favorable, and has even earned a “B” rating, now that GameStop’s chief executive expects the company to achieve a profitable profile for the year.
Let’s be completely honest. GameStop hasn’t had a stellar earnings track record since the onset of Covid-19. Wall Street isn’t particularly optimistic about the future direction of GameStop shares.
Yet, there may be hope on the horizon for GameStop and its stakeholders. Indeed, while GameStop’s financial health isn’t perfect, it might be better than the company’s critics would probably expect it to be.
Expect Volatility with GME Stock
Even though the meme stock mania of 2020 and 2021 has subsided somewhat, don’t assume that it’s 100% safe to invest in GameStop now. There’s still going to be a tug-of-war between the meme stock buyers and the short-sellers.
To quote S3 Partners Managing Director Ihor Dusaniwsky, “It’s really calmed down a bunch, but the volatility is still there . . . It’s still a meme stock.” Any share position in GME stock should be small in size, as traders could get whipsawed daily.
Still, at least an investment in GameStop might be less risky now that the company’s financials are improving. Not that GameStop’s fourth-quarter 2022 results were perfect, by any means.
The company reported net sales of $2.226 billion, a slight decline compared to $2.254 billion from the year-earlier quarter. GameStop’s shareholders should keep a lookout to see if the company shows improvement in this area in the upcoming quarters.
GameStop’s Chief Executive Envisions a Profitable Year
Here’s the good news, though. GameStop stunned the critics by posting a profitable fourth quarter. Analysts expected the company to report non-GAAP earnings loss of 13 cents per share. Yet, GameStop actually posted a gain, not a loss, of 16 cents per share.
In the year-earlier quarter, the company incurred an earnings loss of 47 cents per share. Thus, we can discern an improvement in GameStop’s bottom-line results. Now, the company has to prove that this wasn’t just a fluke.
GameStop President and CEO Matthew Furlong certainly doesn’t see the company’s quarterly performance as a fluke. He confidently claims that GameStop has “considerable cash on hand, negligible debt, streamlined inventory and a path to full year profitability.”
Furlong emphasized “cost containment” as part of the company’s strategy, so perhaps GameStop can maintain its income-positive profile through fiscal discipline.
What You Can Do Now
Some folks will choose not to invest in GameStop because of the likelihood of ongoing share-price volatility. That’s perfectly understandable.
Anyone considering a stake in GameStop shares should first assess his or her own appetite for risk.
That said, it’s encouraging that GameStop’s bottom-line results are moving in the right direction. So, GME stock gets a “B” rating for the time being, and risk-aware investors might choose to take a small-sized share position in GameStop.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.