Is GameStop Stock a Buy After Its 4-for-1 Split?

NYSE: GME | GameStop Corp. Cl A News, Ratings, and Charts

GME – Popular meme stock GameStop (GME) recently announced a 4-for-1 stock split, which buoyed its stock. The company also launched an NFT marketplace recently. However, given its bleak financials, will it be wise to invest in the stock now? Read on to find out….

Specialty retailer GameStop Corp. (GME) is a game and entertainment products provider operating through its various stores and e-commerce properties. The company sells new and pre-owned gaming platforms, accessories, new and pre-owned gaming software, and in-game digital currency.

GME’s stock jumped in extended trade after the company announced its 4-for-1 stock split earlier this month. The stock began trading on a split-adjusted basis on July 22. The company started trading at $38 per share, with shareholders of record receiving three additional shares for each one they previously owned

The stock has declined 13.1% since July 22. Over the past year, GME has declined 20% to close its last trading session at $33.84. However, it is up marginally intraday.

Here are the factors that could affect GME’s performance in the near term:

Recent NFT Marketplace Launch

On July 11, GME announced the launch of its non-fungible token (NFT) marketplace to enable gamers, creators, collectors, and other community members to buy, sell and trade NFTs. The non-custodial, Ethereum Layer 2-based marketplace is expected to expand functionally over time.

However, the NFT space comes with its own sets of concerns. Legislators are becoming increasingly aware of the risks, including issues around intellectual property, consumer welfare, and money laundering, which might ensue a regulatory crackdown.

Bleak Financial Growth

For the fiscal first quarter that ended April 30, GME’s net sales increased 8% year-over-year to $1.38 billion. However, gross profit decreased 9.6% from the prior-year quarter to $298.50 million. Adjusted net loss and adjusted loss per share rose 437.1% and 362.2% from the same period the prior year to $157.90 million and $2.08.

Negative Profit Margins

GME’s trailing-12-month gross profit margin of 21.53% is 42.2% lower than the industry average of 37.23%. Its trailing-12-month net income margin and levered FCF margin of a negative 7.73% and 9.37% are significantly lower than their respective industry averages of 6.58% and 3.25%.

The stock’s trailing-12-month ROE, ROTC, and ROA of negative 40.55%, 14.31%, and 15.11% compare with the industry averages of 16.60%, 7.10%, and 5.52%.

Unfavorable Bottom Line Growth Expectations

The consensus EPS estimate of a negative $0.37 for the quarter ending October 2022 indicates a 5.7% year-over-year decline. Moreover, GME has missed consensus EPS estimates in each of the trailing four quarters. Its EPS is expected to decline 48.2% per annum over the next five years.

POWR Ratings Reflect Bleak Prospects

GME’s POWR Ratings reflect this bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

GME has a Value grade of F, consistent with its forward Price/Sales multiple of 1.58, 78% higher than the industry average of 0.89. In terms of its forward EV/Sales, it is trading at 1.52x, 36.9% higher than the industry average of 1.11x.

The stock also has a D grade for Growth and Quality, in sync with the bleak growth in its last reported quarter and negative profit margins.

In the 46-stock Specialty Retailers industry, it is ranked last.

Click here to see the additional POWR Ratings for GME (Momentum, Stability, and Sentiment).

View all the top stocks in the Specialty Retailers industry here.

Bottom Line

Although GME gained after its stock split announcement, it has declined since it began trading on a split-adjusted basis. Moreover, with increased scrutiny in the crypto market, its NFT marketplace growth might be impeded. On top of it, its negative ROE is concerning. Hence, I think the stock might be best avoided now.

How Does GameStop Corp. (GME) Stack Up Against its Peers?

While GME has an overall POWR Rating of F, one might consider looking at its industry peers, The ODP Corporation (ODP) and TravelCenters of America Inc. (TA), which have an overall A (Strong Buy) rating, and Murphy USA Inc. (MUSA) and Canadian Tire Corporation, Limited (CDNAF), which have an overall B (Buy) rating.

GME shares were trading at $33.37 per share on Friday morning, down $0.47 (-1.39%). Year-to-date, GME has declined -10.05%, versus a -13.11% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
GMEGet RatingGet RatingGet Rating
ODPGet RatingGet RatingGet Rating
TAGet RatingGet RatingGet Rating
MUSAGet RatingGet RatingGet Rating
CDNAFGet RatingGet RatingGet Rating

Most Popular Stories on

:  |  News, Ratings, and Charts

Is the Bear Market Over???

The S&P 500 (SPY) quickly dispensed with 2 key levels of resistance on Wednesday following statements by Fed Chairman Powell. Now more people are contemplating that the 2022 bear market may be over and time to get more bullish. 40 year investment veteran Steve Reitmeister weighs in on this timely topic in his new commentary. Spoiler Alert: he is not impressed and still believes that the bears have the upper hand. Read on below for the full story...

:  |  News, Ratings, and Charts

1 Momentum Stock to Buy Now for Extraordinary Gains in 2023

Valero Energy (VLO) expanded its production for the fourth quarter anticipating increased demand. The stock is up nearly 70% in 2022. It is trading above its 50-day and 200-day moving averages. As this momentum is expected to remain, investors should consider buying VLO for continued gains in 2023. Read on…

:  |  News, Ratings, and Charts

3 Stocks Every Investor Should Add to Their Watchlist This Week

With significant growth registered in the third quarter, investor confidence has been uplifted. Hence, quality stocks with solid growth prospects, such as Amgen (AMGN), Cognizant Technology Solutions (CTSH), and Dole plc (DOLE), could be added to the watchlist this week. Read on…

:  |  News, Ratings, and Charts

1 Stable Stock Warren Buffett Owns and You Should Too

World-famous investor Warren Buffett picked up shares of healthcare services provider McKesson Corporation (MCK) this year. The company has raised its dividends for 16 consecutive years. With a recession expected next year, this healthcare services stock is expected to remain stable as demand for healthcare and related services usually remain unaffected regardless of economic conditions. Thus, investors may consider buying the stock now. Read more…

:  |  News, Ratings, and Charts

3 Stocks Every Investor Should Add to Their Watchlist This Week

With significant growth registered in the third quarter, investor confidence has been uplifted. Hence, quality stocks with solid growth prospects, such as Amgen (AMGN), Cognizant Technology Solutions (CTSH), and Dole plc (DOLE), could be added to the watchlist this week. Read on…

Read More Stories

More GameStop Corp. Cl A (GME) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All GME News