Decoding GameStop Stock: Familiar Investor Sentiment

It’s not 2021, but GameStop Inc. NYSE: GME is giving his loyal band of traders a familiar feeling. Between February 22 and March 6, 2024, GME shares increased by approximately 18%. The surge didn’t last, and the stock has fallen about 10% since hitting a high of $15.81.

The question is: why? The company’s Newsroom page on the company website has shown no news from the company since early December 2023. At that time, GameStop reported its earnings for the third quarter of 2023, and the news was mixed.

The company reported revenue of $1.08 billion, lower than the $1.18 billion expected by analysts. However, the company reported a smaller-than-expected loss, with negative earnings per share of just one cent compared to the loss of eight cents per share expected by analysts.

GameStop’s business model is still problematic

GameStop will report fourth-quarter earnings on March 17, 2024. At that time, analysts expected the company to report positive earnings per share of 27 cents on revenue of $2.07 billion. On the surface, this would appear bullish. However, turnover would be 7% lower than the previous year.

It’s fair to note that earnings would increase about 8% year over year. However, this would only be relevant if the company’s business model supported it. At this point this seems unlikely. GameStop’s core business legacy continues to erode. The company generates revenue from collectibles, but it remains to be seen whether this is a viable model.

This leaves the opportunity arising from the board’s decision to allow chief executive officer (CEO) Ryan Cohen to buy shares of other companies.

As goes Bitcoin, so goes GameStop?

Another reason GME stock could get a bid is Bitcoin (BTC). The cryptocurrency is on fire as investors begin to take a risk-on attitude, expecting lower interest rates and a stronger economy in the second half of the year.

Although GameStop did not announce it on its site, the company has entered into a collaboration with Telos Blockchain. The goal appears to be GameStop’s conversion into a leader in the cloud-based gaming space, with blockchain allowing players to move assets between games seamlessly.

It’s a bold move, and you won’t see GME on a list of bitcoin stocks. But with Bitcoin hitting a new high, GME stock could ride its wake. But even if the company gained a first-mover advantage, it remains to be seen how wide the moat would be.

A trade, not an investment

With so much uncertainty about the company’s business model, GameStop remains a poor investment. However, as a speculative trade, GME stock may have some upside.

The stock is clearly below its December 2023 low. And GME has been trading in a defined range since January. This consolidation usually indicates that it is ready for a move one way or another.

The earnings report could provide more clarity. But without a blockbuster announcement, GME stock continues to look like a playground for traders hoping for a short squeeze. Short interest on GME stock is over 19% and the short interest ratio means it would take more than 10 days to cover short positions.

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