GME Red Alert: Sell GameStop Stocks Now Before It’s Too Late

Based in Grapevine, Texas GameStop (NYSE:GME) is a global operator of video game retail stores with an online presence. The company focuses on the U.S. market, but also has a presence in Canada, Australia, and Europe under other names, and sells a range of gaming products as well as other collectibles and technology at its locations.

However, it is becoming increasingly clear that the most important thing is to reach consumers where they are. With gamers increasingly buying their games and accessories online, it is unclear what unique competitive advantage GameStop has in the long term. This is the main thesis behind the stock’s recent decline.

Now let’s explore a few more reasons why GameStop appears to still have room to fall and why this meme stock is worth avoiding.

Disappointing financial figures

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Despite the incredible recent price surges related to the hype surrounding Keith Gill’s return to social media and the anticipation of another short squeeze, these recent price surges have been short-lived. In fact, each type of speculative buying spree seems to die down faster than the previous one, with GME stock losing momentum much more quickly this time around.

This week, the stock has fallen significantly as investors are clearly more skeptical of the company’s fundamentals. GameStop’s revenue for the first quarter of 2024 fell to $882 million, resulting in a loss of $32.3 million. According to analysts, GME is a top seller as price targets are constantly being revised downward due to a lack of turnaround strategies.

GameStop’s core business of selling physical games is facing major challenges from the digital gaming shift. Sales are declining and cost-cutting offers little relief. Without a successful re-engineering of the business model, GameStop’s long-term prospects remain bleak, despite occasional price increases driven by meme stocks.

Highest price in over a month

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On July 16, GME stock hit a one-month high of over $27 per share. Although Roaring Kitty has received little attention recently and there have been no comments about the company, the stock is up 5% in a month and 2% on the day, fueled by continued interest in meme stocks.

Of course, the stock has declined since this recent rally. Currently, GME stock is trading for around $24, and it’s likely there will be more downside to come.

GameStop rose to notoriety in 2021 when amateur traders drove up the stock price, causing turmoil on Wall Street. The stock calmed down but rose sharply in May after Keith Gill (Roaring Kitty) tweeted a meme and again in June after his first livestream and stock purchase in three years.

Roaring Kitty’s silence led to a sharp drop in GME’s price, but it gradually recovered last week. Investors remain interested in risky assets, especially after the weekend’s political turmoil. However, with expectations for Kamala Harris so strong, some of the major Trump-related meme stocks appear to have underperformed recently.

GME stock still looks like a loser

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GameStop’s underlying business remains in trouble. Fourth-quarter revenue fell 28% to $882 million and net loss was in line with forecasts. CEO Ryan Cohen has capitalized on the situation, raising $933 million through stock sales, boosting GameStop’s cash reserves to nearly $2 billion. While this prevents immediate bankruptcy, it also significantly dilutes shareholders. With over 306 million shares outstanding and authorization for up to 1 billion common shares, further dilution is possible.

GameStop faces challenges as digital gaming reduces the need for physical game retailers. With a valuation of $11 billion, the market is shrinking. While there is niche demand, GameStop is better suited as a trading stock than a long-term investment, so I think this stock is one to avoid right now.

As of the publication date, Chris MacDonald did not hold (directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author and are subject to InvestorPlace.com’s disclosure policies.

At the time of publication, the responsible editor had neither directly nor
indirectly) positions in the securities mentioned in this article.