GameStop Stock Up 15% Today – Time to Buy GME Stock?
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The price of GameStop stock is up 15% this morning in pre-market stock trading action following news that the management will be proposing a stock split in the next Annual Meeting of Stockholders.
According to a filing with the US Securities and Exchange Commission (SEC), the plan is to issue a total of 700,000,000 shares in the form of a stock dividend to increase the company’s share count to a total of 1 billion. Stock splits have been greeted by investors in recent years as they are considered a positive way to increase liquidity and attract more retail interest for those who don’t have access to fractional shares.
Last month, the price of GameStop stock surged 35% as retail interest for the stock came back after months of stalled price action.
One of the reasons for this uptick was that the company announced that it partnered with Immutable X – a blockchain project – for the launch of a long-awaited marketplace for non-fungible tokens (NFT)
Moreover, the company recently filed a trademark for a crypto wallet called the GameStop Wallet. The registration of this branded product marks another milestone in the firm’s seemingly unstoppable pivot toward the crypto ecosystem.
Investors have been greeting all of these news as indicated by the latest performance of GME stock and today’s stock-split announcement is possibly opening another window of opportunity for the company to raise more capital from investors via at-the-market offerings or other mechanisms.
What could be expected from this meme stock after these latest developments? In this article, I’ll be assessing the price action and fundamentals of GameStop stock to outline plausible scenarios for the future.
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GameStop Stock – Technical Analysis
The latest rally experienced by GME stock has pushed the price above certain crucial thresholds and seems to have fully reversed the downtrend that started back in November last year.
Thus far, the price has reclaimed some of the territory that it lost as a result of this pronounced decline and is now surging above its 200-day simple moving average in pre-market action this morning.
Trading volumes have stood above the 10-day average in the past 7 sessions at least indicating that buying momentum is strong.
Momentum indicators are favoring a bullish outlook as the Relative Strength Index (RSI) has already moved to overbought levels for the first time in 4 months. This typically indicates a change in the trend and the MACD is also favoring that view as it has climbed to positive territory shortly after crossing above the signal line.
Moving forward, if the price holds above the 200-day simple moving average, it would be plausible to expect a move toward the $250 area. This results in a total upside potential of 50% based on yesterday’s closing price.
GameStop Stock – Fundamental Analysis
Despite the latest news and interest in GameStop (GME), nothing has changed for the company from a fundamental perspective. The business still needs to find a way to reverse the downtrend that sales have been experiencing for years as the videogame industry has shifted to the online realm.
It is unclear if this NFT project will bring the kind of revenue that could achieve that goal and the odds are low that it will.
Last year, GameStop burned nearly $500 million in cash as inventories increased significantly in response to the ongoing supply chain crisis. It is certainly possible that the cash burn will be reduced in the next few quarters as the situation progressively improves.
With this in mind, GameStop’s cash reserves, which stood at $1.27 billion by the end of January this year, should be more than enough to sustain the firm even if it keeps burning cash down the road.
That said, at a $14 billion valuation, GameStop is trading at 2.25 times its forecasted sales for 2023. That metric is a bit stretched considering that the company’s business model is decaying.
Therefore, if one leaves aside the distorted price action that typically results from the participation of retail investors and the subsequent gamma and short squeezes, GameStop’s fundamentals and prospects don’t justify its price tag and that makes the stock a high-risk investment.
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