Unless you’ve been hiding in a bunker for the last year, you’ve probably heard of a little video game retailer known as GameStop (NYSE: GME). In 2020, the Reddit community called WallStreetBets began receiving posts from an anonymous trader (whose handle we can’t print here, but you know who he is). In these posts, he detailed a long thesis on the shares based on the ability to create a mammoth short squeeze. Many large institutions had taken huge short positions against the stock, predicting doom for a brick-and-mortar store as the industry was rapidly moving away from physical game copies.
The rest was history. The short squeeze was executed and likely turned out to be bigger than even the biggest proponents suggested. GME shares hitched themselves to the proverbial rocket ship and soared to unprecedented heights. The stock closed just below $14 per share on December 16. Just 6 weeks later, it hit an intraday high of $483, and Ja Rule was on CNBC discussing its place in his portfolio. The start of 2021 definitely felt a bit surreal.
Like all short squeezes, the GME rally eventually fizzled out. If you got in early, you’re still way ahead but the stock has retreated below $200 as of this writing. What does the future hold for GME?
GME Stock Market Position
GameStop is headquartered in Grapevine, Texas, and employs more than 12,000 people full-time. Originally incorporated back in 1996, GameStop currently has about 4,800 stores in operation throughout North America, Europe and Australia.
The company currently boasts a market cap of $13.6 billion, which is about 26 times higher than it was a year ago before the massive short squeeze. GME saw its market cap reach a dizzying high of $23 billion during the squeeze, but like the shares, that number has receded a bit. Of course, that still pales in comparison to other retailers selling video games like Target (NYSE: TGT), Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN). Even Microsoft (NASDAQ: MSFT) sells games on their XBox Live network store. Unfortunately for GameStop, its competitors in the space are some of the heaviest hitters in the public markets.
Market cap is often a better barometer of a stock’s potential because it accounts for the total value of all outstanding shares. Some companies have shares priced at $50 with a market cap over $100 billion, while others may have $200 shares and a market cap under $10 billion. Share price doesn’t tell you much about the value of the underlying enterprise.
Analyst’s Bull Case for GME Stock
As of this writing, you’d be hard pressed to find an analyst giving this stock a buy rating. The majority of analysis on the stock is bearish, and no buy rating has been issued since late 2020. The last 2 agencies to issue buy ratings for GME shares, Jeffries (NESE: JEF) and Telsey Advisory Group, have both since downgraded the stock. Jeffries maintains a hold rating on the stock, but it’s price target is a mere $13.
Wedbush Analyst’s Bear Case For GME Stock
For the bear case, far more analysts are willing to throw their hat into the ring, including Wedbush analyst Michael Pachter, who covers retail, software and entertainment for the firm. Pachter states that GME’s share price is completely disconnected from reality due to the short squeeze and that even a return to profitability (which he predicts will eventually happen) won’t justify the current inflated share price. Pachter has a price target of $50 on GME shares.
GME Stock Price History
The last 12 months have been a rollercoaster for GME shareholders. However, those looking to profit off another short squeeze or quick-term boost will likely be disappointed. The stock remains above its 50-day and 200-day moving averages, but the price share and 50-day average do appear on a collision course. From a technical standpoint, there’s nothing overly appealing about a long-term investment in GME. And judging by the revenue numbers and profit growth, the fundamental side isn’t too rosy looking either.
Where to Buy GME Stock
Looking to trade GME shares? You won’t have a shortage of options with brokers. Almost every major online discount broker has GME shares available for purchase — here are a few of Benzinga’s favorite choices:
How Long Will it Take for GME Stock to Reach $400 Again?
If you’re waiting for GME shares to reach their previous highs, you might want to grab a seat and a good book. Will GME reach $400 per share again? Perhaps at some point in the future, but unless the company forgoes stock splits as the market cap rises, a $400 price on a GME share seems an unlikely target.
Short squeezes aren’t based on any fundamental valuation of the company but on the positions held by other traders. Too many shorts can create upward pressure on the stock if the price rises and large short positions must be covered. Video game sales, marketing or corporate strategy have little to do with this — hedge funds and WallStreetBets simply turned this stock into a plaything.
GME Stock May Not Revisit Previous Highs Anytime Soon
GameStop brought in Chewy Inc (NSDQ: CHWY) founder Ryan Cohen in an attempt to springboard its online footprint, and with new gaming consoles on the horizon, the company could soon return to profitability.
However, the meme stock run of 2021 was not based on fundamentals. The market was flush with cash and a few clever traders online noticed the outrageous short positions being built against GameStop, so they turned the firehose on the shorts. The resulting price explosion enriched many retail traders, but lightning rarely strikes twice. GameStop is unlikely to turn anyone into an overnight millionaire again. In fact, the company has more than 1 headwind working against it. The party here might unfortunately be over.
Frequently Asked Questions
Is GME stock a good investment?
From a fundamental standpoint, GME does little from a sales and profit perspective to justify its still-elevated stock price. Even the most bullish analysts have price targets below $100 on the stock.
Is GameStop profitable?
No, the company has faced declining revenue for the last 4 years and has missed earnings targets in 2 of the last 4 reports. The company’s most recent statement showed negative net income.
Is GME in a bubble?
Many analysts have claimed GME to be in a bubble; however, the actual bubble period may have ended in January when the shares tripled up over the $480 mark before settling back down below $200. While the current stock price is unsupported by fundamental financial data, that doesn’t necessarily mean the stock is a bubble waiting to pop at any moment.