Gme: Invest Now Or Never?

GameStop's stock has been upgraded to a Zacks Rank #1 (Strong Buy) as of December 2023. This means that the stock is expected to rise 46.41% over the next three months, with a 90% probability of holding a price between $35.80 and $87.80. The stock's price has been going up and down, with a 2.17% gain over the last two weeks. GameStop's execution of Ryan Cohen's strategy has resulted in improved profitability, with net losses reversing throughout 2023. The company has a strong balance sheet with minimal debt and approximately $1 billion in available cash. However, Wall Street remains pessimistic about sales forecasts, and GME’s high forward P/E ratio and continued volatility are causes for concern.

GME's high forward P/E ratio and continued volatility

GameStop (GME) stock has experienced high volatility in recent years, with its share price soaring to $300 in 2021 and subsequently plunging by over 62% to $24.93 as of early July 2024. The company's forward price-to-earnings (P/E) ratio is currently high, indicating decreased expected earnings. This ratio compares the current stock price to the company's "predicted" earnings per share. GME's forward P/E ratio of 128x is approximately 739% above the retail sector average, which is a cause for concern for investors.

The high forward P/E ratio suggests that GME's stock price may be overvalued relative to its expected earnings. This could indicate that the market has high expectations for the company's future performance, or it may be a sign of caution for potential investors. It's important to note that a high P/E ratio can also be indicative of a growing company, with its stock price and earnings per share (EPS) both rising. In the case of GME, the high forward P/E ratio is likely due to a combination of factors, including the company's improved profitability and its sensitive nature to short-term news and unusual options activity.

GME's forward P/E ratio is significantly higher than its current P/E ratio, which compares the current stock price to the company's actual earnings per share. The large discrepancy between the two ratios suggests that the market expects GME's earnings to decrease in the future. This could be due to various factors, such as Wall Street's pessimistic sales forecasts, lack of trust in GME's core business, or concerns about the company's high level of debt.

While GME's high forward P/E ratio may be a cause for concern, it's important to consider other factors as well when making investment decisions. GME has a robust balance sheet with minimal debt and a strong cash position of approximately $1 billion. The company has also made significant progress in improving its profitability, with net losses reversing throughout 2023. Additionally, GME has a loyal shareholder base, and its chairman, Ryan Cohen, has a strong background in retail and has made significant personal investments in the company.

In conclusion, while GME's high forward P/E ratio and continued volatility are causes for concern, there are also positive factors to consider, such as improved profitability, a robust balance sheet, and a loyal shareholder base. Potential investors should carefully weigh these factors before making any investment decisions.

GME's loyal shareholder base

GME's shareholder base is a loyal one, with many considering Ryan Cohen, the "meme king", a cornerstone of their bullish theses on the company. Cohen has been at the forefront of GameStop for nearly four years now. In 2020, as an activist investor and former Chewy (CHWY) CEO, he acquired a significant portion of GameStop's shares and quickly became the company's primary shareholder. Despite the company's remarkable share price appreciation between the end of 2020 and 2021, Cohen chose not to sell a single share. Instead, he continued to acquire more GME shares, even as the company's valuation surged.

GameStop's retail shareholders have formed tight communities on platforms such as Reddit, and have proven to be loyal supporters of the company. Their campaign to encourage Direct Registration System (DRS) shareholding has locked a significant portion of GME shares away from brokers, which, in turn, prevents them from being loaned out to short sellers. As of November 30, 2023, approximately 25% of GameStop’s outstanding shares were held by registered holders with the company’s transfer agent.

The company's shareholder base is also reflected in its institutional ownership structure, which shows that as of April 8, 2024, GameStop Corp. had 529 institutional owners and shareholders that had filed 13D/G or 13F forms with the Securities Exchange Commission (SEC). These institutions hold a total of 96,096,836 shares.

Some of the largest shareholders include:

• Vanguard Group Inc
• BlackRock Inc.
• IJH - iShares Core S&P Mid-Cap ETF
• VTSMX - Vanguard Total Stock Market Index Fund Investor Shares
• State Street Corp
• NAESX - Vanguard Small-Cap Index Fund Investor Shares
• VISVX - Vanguard Small-Cap Value Index Fund Investor Shares
• Susquehanna International Group, Llp
• Geode Capital Management, Llc
• VEXMX - Vanguard Extended Market Index Fund Investor Shares

GME's negative evaluation from StockInvest.us

StockInvest.us has classified GME as a 'Sell' candidate, citing several negative signals in the stock and expecting it to perform weakly in the upcoming days or weeks. Here is a detailed breakdown of GME's negative evaluation from StockInvest.us:

• Divergence between Volume and Price: On Monday, July 8, 2024, the volume of GME stock fell by 135,000 shares, while the price rose by 1.12%. This divergence between volume and price is considered an early warning sign and indicates that the stock should be closely monitored.
• Short-term and Long-term Moving Average Signals: The GME stock holds a buy signal from the short-term Moving Average but a general sell signal from the long-term Moving Average. The long-term average is currently above the short-term average, suggesting a negative forecast for the stock.
• Pivot Top Sell Signal: A sell signal was issued on May 14, 2024, from a pivot top point, and the stock has fallen -49.85% since then.
• MACD Sell Signal: There is also a sell signal from the 3-month Moving Average Convergence Divergence (MACD), indicating further negative momentum.
• High Volatility and Risk: GME stock is considered "very high risk" due to its high volatility. The stock moved $1.29 between high and low on the last trading day, representing a 5.41% change. The Average True Range (ATR) is also significantly high at 29.87, indicating potential large price swings.
• Negative Evaluation and Stop-loss: StockInvest.us holds a negative evaluation for GME stock and does not recommend a stop-loss at this time.

While the current short-term trend is positive, with an expected rise of 46.41% in the next 3 months, the negative signals and overall weak outlook from StockInvest.us suggest caution for investors considering GME stock.

GME's Zacks Rank #1 (Strong Buy) status

GameStop's (GME) Zacks Rank #1 (Strong Buy) status is indicative of its strong growth prospects and positive market sentiment. This rating system serves as a timeliness indicator for stocks over the next 1 to 3 months, and a Zacks Rank #1 status suggests that the stock is expected to perform well in the short term.

GME's Zacks Rank #1 status is supported by its strong financial metrics and positive market trends. The company has a Growth Score of A, indicating that it is expected to outperform its peers in terms of sales and earnings growth. GME's Momentum Score of A further reinforces the positive outlook, as it measures the stock's price and earnings momentum and indicates favourable timing for entry. Additionally, GME's Value Score of C suggests that it is fairly valued compared to its peers.

The Zacks Industry Rank also adds credibility to GME's Zacks Rank #1 status. The Retail - Consumer Electronics industry, in which GME operates, is currently ranked in the top 37% of all industries, indicating that it is expected to perform well in the near future.

Furthermore, GME's strong balance sheet and cash position are notable factors contributing to its Zacks Rank #1 status. The company has minimal debt and approximately $1 billion in available cash, enhancing its financial stability and flexibility.

However, it is important to note that stock rankings and ratings are not the sole determinants of investment decisions. While GME's Zacks Rank #1 status suggests favourable short-term prospects, it is essential to conduct thorough research and consider various other factors before making any investment choices.

GME's earnings estimates and rating upgrades

On the other hand, Wall Street remains pessimistic about sales forecasts, and GME's high forward P/E ratio and continued volatility are causes for concern. Analysts predict a 7.2% year-over-year drop in sales in 2024 and a further 4.4% drop in 2025. There is also a lack of trust in GME's core business, with analysts expressing deep skepticism regarding Ryan Cohen's "mysterious" plans for the company, especially after the approval of a new investment policy.

In terms of rating upgrades, GME recently received a positive revision from Wall Street due to its improved profitability. However, it is unclear if there have been any specific rating upgrades for the company. The stock is currently trading at $24.45 as of July 8, 2024, and it is expected to rise 46.41% during the next 3 months, with a predicted price range of $35.80 to $87.80.

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