GameStop (NYSE:GME) stock is fading. Shares of the video game retailer have lost almost two-thirds of the value gained after the recent run-up caused by Roaring Kitty’s return to social media. Despite Keith Gill’s belief in the company and significant ownership, investors question the timing of buying GameStop stock.
Despite the video game retailer sitting 140% above the lows hit prior to the revival of meme stock trading, the trading frenzy has subsided. Is having faith in CEO Ryan Cohen’s ability to turn the business around enough to justify buying shares?
No Clear Vision
It is not a pretty picture for GameStop. Sales are falling, it still produces losses and there is no road map for growth. At least not one Cohen will share with investors. Shareholders hoped the retailer’s annual meeting would shed light on what the game plan was but were only left with more questions.
Cohen only gave brief comments, took no investor questions, and the meeting was wrapped up in 30 minutes. There is a good reason the stock tumbled hard afterward. True believers like Gill may not care, thinking Cohen has a clear idea, and that is enough. Yet that’s not a way to invest.
Such opaqueness leaves investors flying blind. GameStop stock might not trade based on its operations (at least not when there is a full-throated meme stock frenzy driving shares) but investors ought to have a vision of where their company is heading. Unfortunately, GameStop shareholders don’t.
Seeing What Sticks
There is no reason to give Cohen the benefit of the doubt. Since taking over GameStop in 2021, there have been several grand plans that came to nothing other than waste scarce resources.
In no particular order, some of Cohen’s far-fetched ideas to turn GameStop around included:
- Becoming an e-commerce behemoth to transform the video game retail into the “Amazon of gaming.”
- Building out two massive fulfillment centers with 2.4 million square feet of space to expand
- Expanding into consumer electronics to sell Vizio (NYSE:VZIO) smart TVs and soundbars.
- Selling Razor scooters in its stores and online.
- Launching an online non-fungible token marketplace.
Net sales were $5.3 billion in 2023, or 12% less than what it generated in 2021. It did produce a meager profit of $6.7 million last year compared to the $381 million loss recorded three years ago, but it has resorted to losing money again. Net losses were $32 million in the first quarter.
Cohen’s biggest accomplishment may be the money he’s raised off the backs of investors during bouts of meme stock buying mania. It had over $1 billion in cash and short-term investments at the end of the first quarter, about equivalent to what it held at the end of 2021. He raised around $1 billion more after the latest hyperbolic trading session by further diluting shareholders.
Where there were less than 73 million shares outstanding three years ago, today there are more than 305 million shares, a fourfold increase.
The Bottom Line on GameStop Stock
Cohen has not earned GameStop investor trust. It is not completely his fault that his efforts have failed. Turning around a brick-and-mortar retailer when your industry is completely upended and transitioning to a new model is not easy.
Yet it also means that Roaring Kitty’s blind faith is not a model to emulate. Investors need guidance on where Cohen is taking them and that is not evident. In the end, fundamentals determine a company’s success and GameStop doesn’t possess a foundation to build upon.
Investors should not buy GameStop stock unless and until it can show it has a strategy to follow and that it is working.
On the date of publication, Rich Duprey 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.