Over the past 12 months, GameStop (GME), a brick-and-mortar video game retailer struggling with declining sales, has massively outperformed the broader market, surging more than 100%. This performance has been driven largely by unpredictable, meme-stock-related events, which is why I maintain a neutral stance on the stock. My personal view is that investing in the stock market is not a guessing game.
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That said, GameStop’s management team, led by CEO Ryan Cohen, has handled recent events with remarkable precision, turning the company into a cash-rich business by conducting equity sales. As a result, it’s hard for bears to argue that GameStop’s outlook is entirely negative.
As the company enters 2025 with plenty of cash, virtually no debt, and a business likely to reach breakeven, the big question is: what is GameStop’s plan to justify its $14 billion market capitalization?
GameStop’s Performance in 2024
Although I have a neutral stance on GME stock, the outperformance of the video game retailer’s shares over the last year has been impressive. GameStop’s shares have surged by triple-digit percentages in a year characterized by significant rallies that seem driven more by unconventional factors—typical of “meme stocks”—than by the company’s business fundamentals.
With the topline shrinking and cash flow under pressure, GameStop shares traded sideways between 2023 and 2024, falling by 5% over that period. The start of 2024 was bearish, with shares dropping more than 36% by April of last year. The outlook seemed bleak, with weak earnings and a lack of catalysts on the horizon. But everything changed in May, thanks to Keith “Roaring Kitty” Gill, the social media trader who played a key role in the massive short squeeze in GME stock back in 2021. His influence once again sparked a turnaround in the share price of GameStop.
In May 2024, after a three-year absence from social media and becoming something of a legend among retail investors, Roaring Kitty reappeared and revealed a multimillion-dollar bet on GameStop shares. His return reignited excitement and sparked a “fear of missing out” (FOMO) rally among retail investors and traders on social media. The hype was enough to send GME stock soaring nearly 400% from its low in April to a peak in mid-May.
A Struggling Business
As a brick-and-mortar retailer focused on cutting costs to break even, with declining revenues each year, much of the bearish outlook on GME stock seems to make sense. But the twist is, despite all the headwinds, the company ended up cash-rich in 2024.
Before Roaring Kitty’s return in May, GameStop had just over $1 billion in cash and short-term investments. The company had been gradually depleting that amount since Fiscal 2023 when it had nearly $1.4 billion on its balance sheet. It’s also worth noting that GameStop has had almost no debt since 2021.
However, with the renewed excitement surrounding the stock, GameStop’s management smartly took advantage of the situation by raising capital through an equity offering. In May, the company sold 45 million shares, raising $933 million, followed by another sale of 75 million shares in June, which brought in $2.1 billion. As a result, GameStop turned what was expected to be a tough year into one where its cash reserves skyrocketed from $1 billion to $4.6 billion. Not too shabby.
GameStop in 2025
One of the main reasons I’m on the fence about GameStop’s outlook is the sheer unpredictability of events in 2024. The company’s journey has been so unconventional that it’s nearly impossible to assume the company’s success or failure based solely on its fundamentals.
Nevertheless, if we take a closer look at the projections for 2025, the outlook is far from satisfactory. The topline consensus points to GameStop ending Fiscal 2025 (in January 2024) at $4.02 billion—an annual drop of almost 24%. For Fiscal 2026, forecasts imply more losses ahead, with revenues reaching $3.75 billion, falling a further 6.7%. At the same time, the projections for the bottom line are profitability in Fiscal 2025, at 0.07 cents earnings per share (EPS), and breakeven in Fiscal 2026.
The key point here is that these projections are less meaningful, given that GameStop is likely to invest part of its huge cash balance in investments in other spheres, far from its core business. In Q3 Fiscal 2024, CEO Ryan Cohen revised GameStop’s investment policy which previously allowed investing cash in fixed-income assets, to now include the option to invest in other companies at Cohen’s discretion. Apparently, Ryan Cohen wants to turn GameStop into a holding company.
GME Stock Investment Thesis
The plan to turn GameStop into a holding company could be a huge success or a major failure. In fact, one of the reasons why Roaring Kitty made it clear he was buying GME stock again last year was because the investment thesis was a bet on Ryan Cohen and his management team.
One could argue that the reasons behind the confidence in Ryan Cohen are based on his “skin in the game” approach, which signals a strong commitment from the management team aligned with GameStop’s shareholders.
Since Ryan Cohen made his initial investment in GME stock back in 2020, he has not sold a single share despite the significant appreciation of his initial stake and near 100% gains in 2024. In fact, in 2023, he increased his stake by an additional 10 million shares.
Is GameStop a Buy?
As GameStop has been deemed a poor investment by virtually every Wall Street firm due to its stock price being driven more by momentum and retail investor sentiment than by business fundamentals, only one analyst, Wedbush’s Michael Pachter covers the stock currently. He rates GME stock a Sell with a $10 price target that is 68.40% below current levels.
Pachter’s most recent rating, issued in November 2024, made it clear that he remains highly skeptical of Ryan Cohen and his team, citing their lack of a clear strategy.
Conclusion
Although GameStop is currently a cash-rich company, its sales have been shrinking, and profits have only emerged through aggressive cost-cutting measures. That said, any chance of a more positive 2025 outlook for the company from a business fundamentals point of view will involve CEO Ryan Cohen taking action with the company’s balance sheet. While there is no clear plan for this, the stock should be trading, as usual, based on speculation and broad market euphoria, resulting in high volatility. Given these factors, I’m staying on the sidelines for now with a neutral outlook.
