The “meme stock madness” that sent GameStop (NYSE:GME) stock “to the moon” during 2021 is now but a distant memory.

Yet even after giving back most of its gains from this speculative frenzy, GME stock continues to punch above its weight, valuation-wise.

GME’s nearly $7 billion valuation vastly exceeds the likely underlying value of its unprofitable video game retailing chain, as well as its more than $1.3 billion cash position.

That’s not to say that GameStop will soon capitulate. Depending on market conditions, the stock could hold steady in the near-term.

Another temporary “short squeeze frenzy” may in theory still be possible. However, this is far less likely to happen now than in 2021 or 2022.

Beyond just the near-term though, the situation with this one time “hot stock” is shaping up to be one where the question is “how much,” not “if,” it sinks further from here.

GME Stock and Fruitless Activism

I can understand why the market remains willing to price GameStop at a premium valuation. Few believe these days that GME has a shot of experiencing the ultimate short squeeze.

However, plenty remain confident that Ryan Cohen, the company’s Executive Chairman, can implement a strategic plan that enables GME stock to first stabilize, then climb again. Cohen is GameStop’s largest shareholder. Not only that, he has continued to increase his position.

Cohen has been presenting himself as a hard-charging activist investor, with public statements about corporate governance, He appears willing to do what it takes to maximize value for all GME shareholders.

That said, so far Cohen’s activism (outside of the initial “meme stock” surge) have proven fruitless.

Cohen has tried to turn GameStop into an e-commerce powerhouse, only for the company to walk back these efforts in recent months.

While pivoting back to its brick-and-mortar business has boosted results, GameStop’s legacy operations are still at high risk of obsolescence as video game sales go fully digital.

The GME chairman has one more avenue he can pursue, but at best this may only mitigate the level of future declines.

One Last Way GameStop Could Transform

Numerous commentators online, including this one, have argued that Ryan Cohen, in his effort to change the game for GME stock, will have the company make a major acquisition.

After all, GameStop not only has billions in cash it can put to work to purchase another business.

GME could also use its richly-priced stock as part of any mergers and acquisitions (or M&A) effort. However, diving into possible deals that the company could pursue, it’s hard to see M&A being the ticket to increased shareholder value.

For instance, let’s say GameStop decides to buy a profitable, yet slow-growing business, such as another brick-and-mortar retailer.

If the company makes such a move, the market could decide it no longer makes sense to value it like an early-stage tech stock.

Even if Gamestop purchases a fast-growing, but unprofitable startup, the impact of increased cash burn could counter the benefits of re-positioning itself as a firm in the fast lane.

Again, pursuing M&A, like any of the other strategic moves Cohen has/can make, isn’t likely to move the needle. Instead, chances are it will only slow/limit how much further GME falls from here.

The Verdict

Based on the above factors, we can deduce what are the best and worst case scenarios for GameStop going forward.

Best-case scenario: the company makes an acquisition that minimizes how much the stock falls back to pre-meme prices (which by the way are at least 80% below current prices).

Worst-case scenario: GameStop chooses a low-quality acquisition target, like another moribund retailer. Or, if not that, the company maximizes cash flow from its legacy business until it is no longer viable.

Either move could lead to a more serious evaporation of shareholder value.

Shares could spiral down to pre-meme prices, or worse, to even lower levels.

Barring a dramatic change to the story, GME stock right now offers investors a bleak risk/return proposition. This is a big red flag to stay away.

GME stock earns a D rating in Portfolio Grader.

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.