GameStop Corp. (NYSE: $GME) is a major multichannel video game, consumer electronics, and gaming collectibles retailer that has become the focus of the “meme stock” phenomenon. Headquartered in Grapevine, Texas, the company specializes in delivering games, entertainment items, and tech across its retail outlets and online platforms. It operates over 4,500 stores across the United States, Canada, Australia, and Europe and is one of the world’s largest retailers of video game products and merchandise.
FY23 Key Highlights
GameStop announced its financial results for FY2023, which ended February 3, 2024, on Tuesday, Mar 26, 2024. it reported net sales of $5.273 billion, down from $5.927 billion in the previous year. However, the company made significant strides in improving profitability, delivering a net income of $6.7 million, compared to the net loss of $313.1 million reported in fiscal 2023.
Adjusted EBITDA, a non-GAAP measure of profitability, stood at $64.7 million for fiscal 2023, compared to an adjusted EBITDA loss of $192.7 million in the prior year. This turnaround highlights the company’s concerted efforts to transform its business model and enhance operational efficiency.
The Rise of Meme Stocks
In August 2020, a YouTube persona known as “Roaring Kitty” posted a viral video laying out a bullish case for GameStop’s heavily shorted stock, suggesting it could surge from around $5 to $50 per share. His video caught the attention of Ryan Cohen, the billionaire co-founder of Chewy.com, who proceeded to acquire a 10% stake in GameStop.
Roaring Kitty’s video and Cohen’s investment acted as a rallying cry for a new breed of investors congregating on social media platforms and online forums like Reddit’s r/WallStreetBets community. These relatively amateur traders began promoting GameStop stock heavily, crafting a “meme” narrative that portrayed their buying as a way to punish wealthy hedge funds that had shorted the company.
So, what exactly is a meme stock? Investopedia defines meme stocks as “the shares of a company that have gained viral popularity due to heightened social sentiment, usually due to activity online, particularly on social media platforms.”
Meme stock communities, while not formally organized, work to promote favored companies and coordinate buying efforts to orchestrate short squeezes on heavily shorted stocks. This can drive share prices to become drastically overvalued compared to traditional valuation metrics.
The Risks of Meme Stock Investing
Investing in meme stocks is considered highly speculative and risky. Since their values are often disconnected from fundamentals and fueled by social media frenzies, they are prone to extreme volatility and price crashes once the hype fades. These stocks carry an added risk of higher-than-normal volatility that could be pushed by viral posts on various social media platforms. Several investors who bought GameStop at its peak lost significant sums as the rally quickly deflated in early 2021.
While the initial meme stock mania around GameStop has cooled since early 2021, the company’s shares remain heavily shorted. This has kept it on the radar of the same online communities that fueled the original short squeeze.
In late March, GameStop shares bucked higher again, rallying over 50% across two days with no obvious catalyst. With heavy trading volume, some analysts speculated that meme stock traders may be attempting to reignite another short squeeze.
Whether this recent volatility presages another meme-driven rally or simply represents the inherent turbulence of these stocks remains to be seen. However, the phenomenon of meme stock trading is still very much alive and destabilizing pockets of the market, over three years after GameStop first captured the world’s attention.
GameStop (GME) Stock Performance
GameStop shares saw a major upswing on May 9, surging 13.13% to close at $18.01. This sudden volatility immediately stirred speculation that the “meme stock” frenzy around GameStop could be reigniting. On Friday, the stock closed 3.05% lower at $17.46 per share.
With over 20 million shares changing hands on Thursday, well above average daily volume, the trading activity mirrored the coordinated buying from meme stock traders that triggered GameStop’s historic short squeeze in January 2021. Whether this move is another meme-driven rally or simply a temporary price spike remains to be seen.
Should You Consider Buying GameStop Shares in 2024?
For most investors, the prudent answer is likely a no. GameStop remains a fundamentally challenged business facing substantial headwinds from the gaming industry’s digital transformation. Its shares have become completely disconnected from traditional valuation metrics.
Instead, the stock’s price swings are driven by the whims of meme stock traders on Reddit and other online forums. This introduces an extremely high level of risk and volatility. Unless you have an extremely high risk appetite and can withstand dramatic price swings, GameStop is not well-suited for the average investor’s portfolio in 2024. The frenzy around it is pure speculation, disconnected from business fundamentals.
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