- Gamestop saw wild swings again on October 31st, so the meme stock craze doesn’t seem to be waning anytime soon.
- GameStop wants to be the Amazon of gaming, but the company continues to struggle financially as rising inflation affects consumer spending.
- There are concerns about what demand for video games will look like as consumers struggle with higher prices for everyday items.
GME stock was once again in the news when it was trading everywhere last Monday. GameStop became known for the meme stock frenzy in January 2021, and it looks like these meme stock rallies are still going to pop up on occasion. Even though GME shares rose 688% in 2021 due to coordination between retail investors and some high-profile whales, the company continues to struggle financially.
What’s up with GME stock?
GME stock saw a jump again on 31 October when trading volumes went through the roof. During the first trading hours of Halloween, 12,696,871 shares changed hands. The swing on that day marked the biggest battle of intraday reversals since the end of May. Had to stop trading GME stock twice within 10 minutes.
Shares of GME ended the day up by 24% only about 0.5% above its opening price of $28.31. GME stock closed November 3 at $26.21.
We recently looked at meme stock rallies to try to understand what was happening with these companies as retail investors pushed up share prices. Many experts have traditionally relied on “smart money,” which often includes institutional investors, funds, and professionals who invest in companies based on stock fundamentals.
There seems to be a disconnect these days as retail investors tend to invest in stocks with poor financial results. Events like “Meme Mania” are changing the investment landscape as retail investors rally behind stocks without considering the actual financial performance of the company.
The stock opened today at $26.35, which is down more than 30% for the year.
How’s the financial situation for GameStop right now?
GameStop last released its financial results on September 7, when they shared how the company fared for the period ending July 31, 2022. These are some notable highlights from GameStop’s financials for the second quarter:
- Earnings per share was negative $0.35.
- Revenue was reported at $1.14 billion, lower than analysts’ expectations of $1.27 billion and down 4% year over year.
- GameStop had a negative return on equity of 33.28% and a negative net margin of 8.57%
- Inventory increased to $734.8 million. This worried many investors, even as the company said they were preparing for potential supply chain disruptions.
- Sales from collectibles (a growing revenue stream for the company) were $223.2 million.
Operating losses increased from $58 million to $107.8 million, with net sales down 4% year over year due to struggling software and hardware sales. The company still has $908.8 million in cash and just $32.1 million in long-term debt, so the balance sheet is still considered healthy. However, these debilitating financial conditions have no bearing on the meme stock-buying frenzy.
What’s next for Gamestop?
The company’s stock is down about 30% for the year. Investors are hoping that GameStop can turn their business around. Here are some recent changes that Gamestop has made.
GameStop shuts down physical locations
To improve profit margins, the company closed several physical locations. GameStop was able to control some of the losses by dropping the brick-and-mortar location count from 7,276 at the end of fiscal year 2017 to 4,573 stores at the end of fiscal 2021. The company is trying to transition to online sales. , where they offer collectibles and much more.
Miscellaneous Revenue Streams
The company also focused on expanding its e-commerce platform to sell more collectibles and accessories. A recent story on Reddit highlighted how GameStop employees were laughing at the idea that stores were now selling items classified as “random junk,” including a lemon-powered watch. And an algebra tile set were the highlight. Some customers on social media complained that they liked it when GameStop focused on video games. We’ll have to see how the collectibles revenue segment performs for the company.
Gamestop NFT Marketplace
GameStop is working on diversifying its revenue streams by leading the blockchain movement by launching its NFT marketplace. After operating as a public beta since July, NFT went live on marketplace ImmutableX. In August, news emerged that the NFT marketplace was not performing well, and experts were concerned about whether the venture would be profitable or just another distraction.
Video game sales may drop
With so many people at home due to pandemic-related lockdowns and stimulus money in bank accounts, the demand for video games peaked a few years back. However, in a recent report by the NPD Group, it appears that video game spending declined 13% in the second quarter of 2022. While consumer spending on video games grew by 29% in 2020 and then an additional 8% in 2021, the research firm believes that this figure will be roughly the same in 2022 due to supply chain issues and the lack of a big hit in the video game space. will decrease by 9%. Consumers’ struggle with rising inflation will not help the situation.
GameStop is also known as a leader in buying and selling video games, but there is uncertainty about the future of that business as digital downloads continue to dominate the world.
This leads us to the most important question…
Should you invest in Gamestop?
We determined in a recent article that investing in GameStop is risky because a company needs to take some important steps to turn its business around. GameStop lost $400 million from April 2021 to April 2022, which for some reason isn’t a concern for retail investors looking to pump up the stock with meme rallies.
We do not believe that now is the time to invest in such speculative assets as there are concerns about how a hike in interest rates could propel us towards a recession. The sell-off in the stock market of 2022 has created a lot of volatility in the market, which has affected even strong financial companies.
Several analysts have also pointed out how GameStop stock with a price-to-sales ratio of 1.4 is overvalued because the company is still technically driven by what many consider a dying industry brick-and-mortar sales. Huh.
What’s Next for Meme Stocks?
Meme stocks are changing the investment landscape because financial results are irrelevant to stock prices. Some analysts are anticipating stricter SEC regulations, but suspicions of a mem stock rally have made it difficult to stop stock market trading altogether. The SEC has made it clear that they are not fans of meme stocks when they recently released a series of videos where they take a shot In Mem Stocks, Crypto Brothers and Margin Trading. The disclaimer cautions young investors against playing games with their financial futures.
Even though the SEC is working on educating investors, it’s challenging to know what kind of regulations could be implemented soon. The SEC has indicated changes to the payment-for-order flow system. These changes would force market makers to compete for trade execution from retail investors in an effort to improve competition. The rules would also ensure that market makers must share data around fees that firms earn over time of trades. There has already been pushback from Robinhood and others who disagree with these changes. We are still waiting for more information on these proposed rules.
Without stimulus money and fears of a recession, there may be no massive meme stock rallies in the near future.
How should you invest?
While investing in a company like GameStop is tempting, it’s important to remember that investing should not be treated like gambling. You can see your social media timeline flooded with news about how the stock is doing despite adverse market conditions, but that doesn’t mean you have to jump on the trend.
If you’re not sure which companies to invest in, you can always take an investment estimate with the investment kit from Q.ai. To learn more, visit Q.ai. see Miniature Squeeze Kit To invest in this unique category of stocks. The Short Squeeze Kit aggregates historical and technical financial information on thousands of US equities, including relevant sentiment information.
For better financial results going forward, GameStop will need to make some big improvements to the business. The company will report for the third quarter in December, so we’ll see how various revenue streams perform as GameStop continues to struggle. With all that said, there’s no telling what kind of meme rally we might see at any random time in the near future as GME stock has seen random bursts of activity since early 2021. Meme stock rallies have been disconnected from financial results. company, so we’ll take a closer look at this stock.
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