What’s Happening With GameStop Stock?

-54.46%
Downside
25.46
Market
11.59
Trefis
GME: GameStop logo
GME
GameStop

The stock price of GameStop (NYSE: GME) is up nearly 40% year-to-date. It has been very volatile, with its stock’s 52-week price ranging between $10 and $65. The rise in GME is driven by a broader rally seen in “meme” stocks (refers to the stocks that see growth primarily fueled by social media attention). GME stock is expected to see sharply higher levels, with after-market trade suggesting a gap-up of over 75% in trade on Monday, June 3. This can be attributed to a screenshot shared by “Roaring Kitty” showing a likely position of $116 million in the company. Roaring Kitty is the account name of Keith Gill, who was behind a significant short squeeze in GME stock back in 2021.

Looking at the company’s stock performance over a slightly longer term, GME stock has seen extremely strong gains of 400% from levels of $5 in early January 2021 to around $25 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. However, the increase in GME stock has been far from consistent. Returns for the stock were 688% in 2021, -50% in 2022, and -5% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that GME underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Consumer Discretionary sector including AMZN, TSLA, and TM, and even for the megacap stars GOOG, MSFT, and AAPL. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could GME face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months — or will it see a strong jump? There is no company-specific news to support the stock price rally over the recent weeks. Given the lack of fundamentals, it is best for long-term investors to avoid the stock, in our view. In fact, the $6 price estimate average of analyst forecasts reflects a large 70% downside from the stock’s previous close. 

GameStop’s revenue has also been on a decline, falling from $6 billion in fiscal 2022 (fiscal ends in January) to $$5.3 billion in fiscal 2024. Although the company’s reported earnings did improve from $(1.31) to $0.02 over the same period, its margins are very thin. Overall, we think GME stock may see higher levels in the near term on the speculations of Keith Gill’s position. However, we believe investors will likely be better off avoiding GameStop, amid lack of solid fundamentals.

Returns Jun 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 GME Return 0% 32% 266%
 S&P 500 Return 0% 11% 136%
 Trefis Reinforced Value Portfolio 0% 4% 640%

[1] Returns as of 6/3/2024
[2] Cumulative total returns since the end of 2016

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