The past year’s price action in the shares of video-game retailer GameStop {GME} have been exciting, to say the least. The now-famous, Reddit-fueled short squeeze of GME stock has created wealth for some traders while destroying the accounts of others.
For old-school, valuation-obsessed investors such as myself, it’s been fascinating and perplexing. I can argue all day long that GameStop shares don’t “deserve” to be above $100, yet here we are.
Over time, I’ve learned to accept that the markets can be senseless. Heck, I even took a bullish angle on GME stock as a play on traders’ irrationality in 2021.
Going forward, I would expect the stock to continue to wobble and lurch. Yet, there may be reasons to believe that the company – and, by extension, the stock – will achieve some stability, if not sensibility.
A Closer Look at GME Stock
It might seem like many years ago, but GME stock was technically a penny stock as recently as August of 2020, when it was trading at $4 and change.
I’m not saying that to be insulting, but only because the U.S. Securities and Exchange Commission defines a penny stock as a stock trading for less than $5.
When the r/WallStreetBets drama played out early this year, company fundamentals were effectively thrown out the window and the share price flew far above $5.
As financial commentators watched in disbelief, GME stock hit a 52-week high of exactly $483 on Jan. 27, 2021.
Maybe this marked a sea change in the markets, or maybe it didn’t. Either way, there was unfortunately no shortage of bag holders as GameStop shares tumbled to the $40 region in February.
There’s been some recovery, with the stock settling at $154.69 on April 16. Still, it concerns me that GameStop’s trailing 12-month earnings per share is -$3.31.
Getting that number into positive territory would go a long way toward proving the critics wrong. Thankfully, some recent changes happening at GameStop could help to put the company on the right path.
A Clean Slate
Change isn’t necessarily a bad thing. Indeed, some “reorganization” at the C-Suite level could do GameStop and its stakeholders some good, I believe.
Thus, GameStop reportedly informed the U.S. Securities and Exchange Commission that it’s expecting eight of its board members to leave the company.
At the time of the announcement, GameStop’s board apparently hadn’t yet “determined the definitive slate of nominees for election at our 2021 Annual Meeting.”
All of this came on the heels of GameStop disclosing that Chief Customer Officer Frank Hamlin would be leaving the company. Prior to that, Executive Vice President and Chief Financial Officer Jim Bell announced his resignation from GameStop.
On top of all that, GameStop revealed that the company’s now looking for a new chief executive officer to replace George Sherman. Meanwhile, the company is preparing to install Ryan Cohen as GameStop’s new chairman.
Slashing Debt
So, pretty soon GameStop will be practically unrecognizable, at least at the executive level, compared to the one that existed during the Reddit pop-and-drop.
That’s not a bad thing, really. Hopefully, the new leadership will signal a shift in GameStop’s culture and strategy.
More specifically, GameStop’s stakeholders should expect the company to pivot from a legacy, brick-and-mortar video game retailer to a business that’s focused more on e-commerce.
Only time will tell whether that actually pans out. In the meantime, GME stockholders can at least take comfort in GameStop’s implementation of what appears to be a debt-elimination plan.
Apparently as part of this plan, GameStop stated that the company is redeeming $216.4 million worth of senior notes. This follows a move the company made in March to eliminate $73.2 million in debt.
Wedbush analyst Michael Pachter stated what’s probably obvious now, saying, “Debt retirement is what they should have focused on in the first place.”
But hey – better late than never, right?
The Bottom Line
It pains me to recommend owning GME stock at the current price. Yet, I can’t deny that there may be beneficial changes afoot.
That being said, please don’t take a huge position in GameStop shares. Expect volatility, especially as the board’s in a state of fluidity.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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GME shares were trading at $164.95 per share on Monday afternoon, up $10.26 (+6.63%). Year-to-date, GME has gained 775.53%, versus a 11.31% rise in the benchmark S&P 500 index during the same period.
About the Author: David Moadel
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. More...
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