Apparently, a highly respected investor has lost faith in video game retailer GameStop (NYSE:GME). Or at least, his firm divested its position in GME stock. Whether you also intend to give up on GameStop is entirely up to you. However, even though GameStop isn’t perfect, the company is demonstrating improvement, and investors don’t have to just bail on the stock.
It’s fine if you don’t want to get involved with meme stocks. Yet, GameStop isn’t only a short-squeeze target for social-media users. It’s a real company with real revenue, and GameStop’s management has a specific turnaround plan.
Still, it’s important to know what the investing whales are up to. So, let’s see who dumped his stake in GameStop and then decide whether you should follow suit or stay in the trade.
Ray Dalio’s Hedge Fund Throws in the Towel on GME Stock
As you may be aware, Ray Dalio, a famous billionaire, founded a hedge fund known as Bridgewater Associates. Notably, that firm ended 2022 with $712,000 worth of GameStop shares.
There’s more to the story, though. As it turns out, a filing reveals that Bridgewater Associates divested its entire position in GME stock during the first quarter of 2023.
If this selling activity took place in Q1 2023, then we can’t write it off as end-of-year tax-loss harvesting. On the other hand, there’s no way to know for certain why Dalio decided to throw in the towel on GameStop.
Maybe Dalio wanted to reallocate Bridgewater’s capital toward something he thought would be more promising. Who knows? It’s not a productive exercise to try and guess why Dalio gave up on GME stock.
Instead, I recommend learning as much as you can about GameStop and considering the company’s future prospects. You might be surprised to discover how much progress GameStop has made as a business in turnaround mode.
GameStop Slims Down for Future Growth
Could a smaller, more focused GameStop thrive in 2023 and beyond? That’s GameStop CEO Matt Furlong’s plan for the company, and it’s a reason for investors to stay optimistic.
Furlong’s letter to the company’s shareholders doesn’t mince words or whitewash GameStop’s less-than-stellar past performance. The chief executive fully admits, “At the start of fiscal 2021, GameStop had burdensome debt, dwindling cash, outdated systems and technology, and no meaningful stockholders in the boardroom.”
GameStop was, indeed, “in distress and had an uncertain future.” Thankfully, the company took action by cutting costs and optimizing its inventory in fiscal 2022. That was a challenging year for technology and retail businesses, but GameStop still managed to show progress.
Consider this: GameStop reported a net earnings loss of $147.5 million in the fourth quarter of fiscal 2021. Fast-forward to fiscal 2022’s fourth quarter, and we see that GameStop managed to produce net income of $48.2 million.
Furthermore, GameStop assuaged oversupply concerns as the company reduced its inventory from $915 million at the close of fiscal 2022’s fourth quarter to $682.9 million at the end of Q4 2022. GameStop also “[i]nitiated cost cutting initiatives and headcount reductions” in fiscal 2022 “to increase operational efficiency.”
Looking ahead, Furlong expects GameStop to continue reducing its “excess costs, including in Europe.” There, GameStop has “already initiated exits and partial wind-downs in certain countries, such as
Ireland.”
Stay the Course With GME Stock
Rather than play guessing games when considering Dalio’s GameStop share sale, try another tactic. Give GameStop a second look and a second chance as Furlong’s grand plan could yield surprisingly positive results.
GameStop’s pivot to profitability is impressive, and the company could thrive if it continues to slim down and stay focused. Therefore, you’re invited to take note of Dalio’s divestment but still stay the course with GME stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
