The buzz around GameStop (NYSE:GME) over the past few years has been far removed from the underlying business of the company. Indeed, GME was perhaps the poster child of the meme stock craze, and the volatility that surrounded share prices made certain individuals some hefty profits.
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GME share prices rose quite a bit over 2024, and are up almost 100% over the past twelve months. A large chunk of these gains was due to the aforementioned meme phenomenon in the first half of the year.
At the end of the day, however, investor Gordon Best is choosing to look beyond the company’s status as a meme stock and instead focus on GME’s core business. The investor is not thrilled by what he sees.
“Declining revenues, competitive pressures, and an ambiguous strategy cast doubt on GameStop’s future viability,” explains Best.
The investor notes that GameStop has suffered a 20% annual decline in its net sales in Q3 2024, and these losses are slated to force a number of store closures throughout Europe. Among other factors, the investor adds that the tough macroeconomic environment has cut down on discretionary spending, harming GME’s bottom line.
While the company management astutely used the elevated share prices to raise capital via equity offerings, Best is waiting for a clear signal from GME for how it plans to use these funds. The investor mentions that GME could potentially use its surplus of cash to turn itself into a holding company by investing in other assets, however this idea remains “largely speculation for now.”
Looking at traditional valuation metrics, Best does not see much reason for optimism either, with multiples that are many times the sector average.
And yet, there is no guarantee that investor sentiment will not shift again regarding GameStop, with Best acknowledging that future surges could allow some fortunate traders to turn a tidy profit. The investor, however, will not among those ready to take on the risk.
“With tremendous volatility in both directions, I feel it’s more of a gamble than a traditional investment,” Best concludes. The investor is assigning a Hold (i.e. Neutral) rating for GME. (To watch Best’s track record, click here)
Wall Street analysts are not devoting too much attention to GME, with only 1 Sell rating from the past three months. Its 12-month price target of $10.00 would translate into losses approaching 70%. (See GME stock forecast)
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Disclaimer: The opinions expressed in this article are solely those of the featured investor. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
