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Proprietary Data Insights Financial Pros’ Top Meme Value Stock Searches in the Last Month
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Should You Hold GameStop (GME)?
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With one vague tweet, Roaring Kitty kicked off a buying frenzy in long-forgotten meme stocks. GameStop (GME) saw the biggest search surge by both financial pros and retail traders. Considering the stock nearly tripled in a matter of days, who wouldn’t be watching it? Many analysts expected GameStop to fold by now. The company generated $108 million in cash from operations in 2022 but burned through twice that in 2023. The company has $1.2 billion in cash, more than enough to last for several more years. But does that make it worthy of your investment? GameStop’s Business GameStop Corp. has evolved from a traditional brick-and-mortar retailer it transformed into a leading specialty store for games and entertainment products, both in physical locations and online. Based in Grapevine, Texas, the company is known for its wide range of products and strong brand recognition in the gaming world. Today, the company serves millions of customers worldwide, with 4,169 stores across the United States, Canada, Australia, and Europe. GameStop segments its business into the following areas: Hardware and Accessories (52% of total revenues) – Includes new and pre-owned gaming consoles, controllers, and gaming headsets from major manufacturers like Sony, Microsoft, and Nintendo. Software (38% of total revenues) – Comprises new and pre-owned gaming software for current and prior generation consoles, as well as in-game digital currency, downloadable content, and full-game downloads. Collectibles (10% of total revenues) – Consists of apparel, toys, trading cards, gadgets, and other retail products for pop culture and technology enthusiasts. As the video game industry evolved into streaming and subscriptions, GameStop pivoted by boosting its digital presence and embracing new technology. It offers new and pre-owned gaming hardware, software, and accessories, along with collectibles like apparel, toys, and gadgets. Their trade-in program allows customers to exchange pre-owned products for cash or store credit. This program and strategic transformations help GameStop remain relevant and competitive in the gaming industry. GameStop also invested heavily in its digital and e-commerce platforms to create a seamless customer shopping experience. Initiatives such as faster fulfillment through ship-from-store offerings and improved customer service have been key focus areas. Financials
Source: Stock Analysis GameStop’s revenues are down almost 50% from a decade ago. At the same time, margins have plummeted, going from slightly positive to negative. Operating cash flows, which were once positive, have also flipped into the red. It’s left the company in a precarious position of simply holding on. Valuation
Source: Seeking Alpha One thing all the meme stocks have in common – they are sort of worthless. None generate positive cash from operations nor a P&L profit. At best, we can value them on a price-to-sales ratio, which says GameStop is cheap relative to its sales. But it’s also in a dying business. Growth
Source: Seeking Alpha Companies like Virgin Galactic (SPCE) that aren’t generating any money can throw up huge revenue growth numbers. But they’re starting from a baseline of negligible sales. AMC Theaters (AMC), which runs a traditional business, has seen sales improve. But as you’ll see below, it still doesn’t generate a profit or positive cash flow. Profitability
Source: Seeking Alpha GameStop’s margins are abysmal. There are no two ways around it. Like the others on this list, it burns through cash running its operations, making its future highly uncertain.
Our Opinion 0/10 Even if GameStop’s stock hadn’t had its recent run, we would still avoid shares. Management hasn’t stabilized revenues nor shown that its transformation end state will be profitable. While these stocks can be great day trades, they’re not worth a serious investment. |
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