It was not only three years ago that game retailer GameStop (NYSE:GME) became widely popular as a meme stock. GameStop stock still has experienced recent periodic surges thanks to the growing prevalence of Reddit investors.
A recent Roaring Kitty’s post reignited interest, briefly boosting GME stock to more than $60. And despite analysts suggesting this stock should be worth roughly $7 per share, and a mini short squeeze has taken place, there are some who believe this stock could be headed much higher.
The thing is, following the stock’s recent surge, it’s come back down to earth in a big way. Now back around the $20 level, the question is whether another rally can be sustained, and how high it might go.
Let’s dive into whether GameStop is worth this attention right now.
$1 Billion Stock Sale
Climbing over 25% after the news of the $1 billion equity offering, GameStop stock also saw a surge that could underscore the stigma for meme stocks. Online hype rather than fundamentals mainly drives these sorts of moves.
The presence of short sellers suggests overvaluation of GME stock. The company sold 45 million shares, earning around $933 million.
While an argument could be made that such a share sale may be a positive for the debt-strapped video game retailer, it’s also true that this company is losing a significant amount of money. As losses mount, and shares are printed, existing investors are likely to be diluted down toward zero.
Q1 Doesn’t Look Promising
On May 17, the stock plummeted over 19.7% because of its plans to sell more shares. The company also announced plans to sell 45 million class A shares. This comes after the brief surge in GameStop’s shares earlier this week.
Moreover, GameStop expects a Q1 sales estimate of $872 million from $892 million, which contrasts sharply with 2023’s $1.24 billion. The market also expects revenue as close as $1 billion.
GameStop also anticipates a Q1 net loss of $27 million to $37 million, compared to last year’s $50.5 million. The company is also struggling with tight competition from online retailers. In March, it announced job cuts to curb expenses.
Best to Sell GameStop Stock Right Now
GameStop’s resurgence followed Gill’s return to social media, sparking a 200% surge in two days. However, the rally has clearly faded, with shares dropping 54% by week’s end. Gill’s motives for the post remain ambiguous.
I think GME stock is certainly due for further declines over the long-term. The company’s core business reminds me of blockbuster, and short sellers seem to agree.
It’s just a question of how much juice retail investors have to spur another rally, and if it’s even possible. In my view, GameStop could be among the safest short opportunities in the market right now.
On the date of publication, Chris MacDonald did not hold (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.
