How to Approach the Meme Stock?
GameStop Corp. GME, the original “meme stock” that ignited a social media-fueled trading frenzy, is now sitting at a significant discount compared to its previous highs. Once the favorite of retail investors and Reddit forums, GameStop has recently slipped in value, tempting bargain hunters and seasoned investors alike to take a second look. But is GameStop’s discounted price an opportunity or just another chapter in a volatile saga?
The video game retailer is currently trading at a forward 12-month price-to-sales (P/S) multiple of 2.56X, which positions it at a discount compared to the industry’s average of 2.91X. The stock has also been trading below the high level of 4.16, as observed over the past five years.
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However, shares of GameStop have just risen 0.1% in the past three months compared with the industry’s growth of 5.6%. Moreover, GME has underperformed the broader Zacks Consumer Discretionary sector and the S&P 500’s respective gains of 6.8% and 5.3% in the same time frame. The sluggish price movement reflects underlying challenges that could be impacting investor sentiment.
Image Source: Zacks Investment Research
GameStop stock closed at $22.68 during yesterday’s trading session, sitting 65% below its 52-week high of $64.83, achieved on May 14, 2024. The stock is trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability.
Image Source: Zacks Investment Research
GameStop maintains a loyal following among retail investors, sustaining its status as a meme stock. The company has seen increased interest from institutional investors. This shift indicates a growing recognition of GameStop’s potential beyond its meme stock identity. Institutional buying could provide additional support to the stock, helping stabilize prices and enhance credibility in the eyes of retail investors.
GameStop’s business model is undergoing significant transformation. The company is steadily shifting toward becoming a more digital-centric entity. GameStop is leveraging the shift toward digital commerce with an increased focus on e-commerce and digital gaming. This transition is critical, especially as consumer shopping habits evolve, making it essential for GameStop to capitalize on the digital marketplace.
Another positive aspect is GameStop’s improving balance sheet. As of the end of the second quarter of fiscal 2024, the company reported cash, cash equivalents and marketable securities totaling $4.2 billion. This strengthened cash position, combined with reduced debt, provides a solid financial foundation that enables GameStop to pursue strategic investments without excessive leverage. Furthermore, the recent completion of its “at-the-market” equity offering program, which involved selling a maximum of 20 million shares for approximately $400 million in gross proceeds, will support acquisitions and other investment opportunities.
GameStop’s collaborations with industry leaders in the gaming and technology sectors position it for future growth. The company’s focus on innovative technologies and expanding its offerings in collectibles and merchandise indicates a commitment to diversifying its revenue sources and engaging a wider audience.
