Risk/Reward Rating: Negative
GameStop reported earnings this evening after the market closed sending the shares down 10%. The earnings have been eagerly anticipated as the company has become a lightning rod for the resurgence of retail trading in 2021, when the shares exploded from $10 to $480 over the course of just two weeks in January. GameStop quickly became a short squeeze and anti-establishment meme as many hedge funds and professional traders were caught offside with large short positions when the stock exploded. The stock gained further notoriety when it became the focus of congressional hearings which no doubt added to the anti-establishment allure.
While the stock did collapse from $480 to $40 in short order after the January 2021 runup, the persistence of the anti-establishment meme status of GameStop has been impressive and has propped up the share price in a volatile range around a central level of $200. The company seized the day and issued new shares into the elevated price level, breathing new life into what was widely believed to be a dead man walking business model in the beleaguered bricks and mortar retail sector.
The GameStop Foundation and Reboot Strategy
The above developments were timely for GameStop as the COVID pandemic was expediting its downward trajectory. Prior to the COVID outbreak, the downward trend of the GameStop business model was well established prompting a corporate strategy change in 2019 labeled GameStop Reboot. Ironically, the near death COVID experience for GameStop also caused the resurgence of retail trading that has provided the company fresh equity capital and a new lease on life to execute the reboot plans. The question for GameStop investors is whether it is too little too late or can the company successfully execute its turnaround within the limited budget it now has.
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