The problem is the amplitude of the market distortion social-media driven, frenzied buying can create. The dizzying heights that GameStop’s valuation reached benefits only those who get off the ride before it stops. For everyone else, it makes the stock toxic until reality sets in.
Full Answer
What happened with GameStop stock?
Due to increasing competition, software changes, and a decline in foot traffic in malls around the world, GameStop gradually became the target of many short-sellers trying to …
Did GameStop issue more shares?
Feb 02, 2021 · That worries me because speculating in the market can wreck an individual’s finances and negatively impact the market and the economy. Publishing stories of ‘investors’ that struck it rich with GameStop stock can actually hurt novice investors who may feel that they were left out and wish to participate.
Why did GameStop stock rise?
Feb 02, 2021 · Jan. 26, 2021. During January, GameStop shares soared nearly 2,500%, from $18.83 to $483, before pulling back. The rise was turbocharged by purchases of call options, which allow the buyer to ...
When will GameStop stock drop?
Feb 07, 2021 · GameStop’s stock was subject to heavy short-selling. Short-sellers make various arrangements through which they can gain financially if …
Why is GameStop stock going down?
The consumer electronics industry was pinched by supply chain shortages, the rise of the omicron variant of COVID-19, and declining demand for products in the video game niche compared to a year earlier. Each of those challenges likely affected GameStop over the holiday selling period, too.Mar 3, 2022
What is the issue with GameStop?
Amid the first COVID-19 lockdown in March 2020, GameStop stock dropped to a value of $2 to $4 per share, the lowest in the company's history. Much of this was due to GameStop stores being closed. The low value of GameStop's stock gave birth to an idea to manipulate the stock market.Feb 21, 2021
What is the deal with GameStop stocks?
It's how investors can make money off a stock falling. In a short sale, they borrow a share of GameStop and then sell it. Later, if the stock price does as they expect, they can buy the stock at a lower price and keep the difference.Jan 28, 2021
Why did everyone buy GameStop stock?
WallStreetBets members wound up being right about the squeeze, and GameStop bulls notched incredible gains as short-sellers were forced to buy back the stock at elevated levels in hopes of avoiding massive losses.Mar 19, 2021
Is GameStop for real?
GameStop is a company that owns stores, many based in malls, that sell video games, consoles, peripherals and assorted knickknacks and merchandise. But these days, GameStop is also an inkblot. Talking heads on stock-watching panel shows have compared the stock's surge to the storming of the Capitol.Feb 1, 2021
What happened with GameStop stock in 2021?
Stocks of video game retailer GameStop exploded in January 2021, effectively doubling in value on a daily basis. At the close of trading on January 27, GameStop Corporation's stock price reaching 347.51 U.S. dollars per share - or +134 percent compared to the day before.Jan 31, 2022
Is GameStop a good investment right now?
GameStop is down 70% from record highs but remains a high-risk bet for investors given its negative profit margins and falling revenue.Jan 20, 2022
What happened to GameStop stock Reddit?
GameStop stock climbed by 104% until trading was halted for a second time - moments before markets closed. The rapid rise came as Reddit, the online home of activist investors that led the GameStop movement in January, went down temporarily. The stock gained nearly 90% in after-hours trading.Feb 24, 2021
What is equity capital?
A company gets equity capital when it goes public, either through an initial public offering or a subsequent public offering. These are transactions happening in the secondary market between buyers and sellers.
When will GameStop be released in 2021?
By David Drucker. February 2, 2021 at 5:00pm. For the last couple of weeks, GameStop—a struggling brick-and-mortar video game retailer—has been at the center of one of the financial world's biggest news stories. Activity by social media investors pushed GameStop's shares to major heights, forcing Wall Street hedge funds to pay up huge sums of money.
Why are short sellers important?
Most free-market advocates believe that short-sellers play a useful role in investment markets. By claiming that a particular stock is overvalued, and putting their money behind the claim, they assist the market in discovering what the right price of the stock should be . At least, so goes the argument.
What happens if a stock is overvalued?
If a stock is overvalued, the market will ultimately figure that out on its own, without being artificially prodded by short-sellers. Short-selling isn’t investing. It’s placing a bet, often followed by a campaign to manipulate the market. It should be forbidden.
Is GameStop stock short selling?
GameStop’s stock was subject to heavy short-selling. Short-sellers make various arrangements through which they can gain financially if the stock price goes down. They aren’t really investing. They are making a bet about the direction of the stock.
What is a GameStop?
GameStop is an American brick-and-mortar retailer that specialises in video games, consumer electronics and gaming merchandise. It was widely deemed a company in declining health—indeed, its mere existence as a physical shop was viewed on Wall Street as being decidedly outdated, and its business model was hurtling towards failure.
When will GameStop be released in 2021?
by internationalbanker March 29, 2021. March 29, 2021. By Alexander Jones, International Banker. Unless you’ve been completely cut off from the outside world, there’s a good chance you’ve heard the word GameStop circulating around social media and in news headlines over the last couple of months. And along with GameStop, it’s also likely ...
What happens when you buy an ETF?
When buying into an ETF, an investor effectively gains exposure to all of the company constituents of that ETF, irrespective of their individual prices. And when selling, the investor similarly sells all the constituents at the same time.
The downtrend is still in play
The downtrend looked like it had possibly been broken last week as the stock cleared its prior relative high near $20. However, that was quickly squashed after the guidance update and we are right back down to its last relative low, which was much higher than the $15.54 mark set back in November.
The update was strong from a sales perspective
Total sales were up 10.6% during the period on a robust 11.8% comp sales gain on strength in the Switch and Xbox One as well as the Collectibles business. Indeed, accessories for games and new hardware sales led the one in what has become a somewhat familiar theme in GME’s press releases.
The model is changing
GME’s success has long been predicated upon used software sales, which provide much higher margins than those of new hardware and software sales.
Lower margin revenue is a problem
If we put all of this together we have GME as a retailer that is getting about two-thirds of its total revenue from new hardware, new games or accessories. That two-thirds of revenue is on products that consumers can get in a variety of places and doesn’t differentiate GME in any way.
The stock is still very cheap
So what’s wrong with GME? A bunch, it would seem. However, the stock is so absurdly cheap that I find myself drawn to it nonetheless. A forward multiple of 5.4 is more like what you’d see from a company that is going out of business, not one that is continuing to produce more than $3 in EPS.
The lead-up to the next-gen game consoles is only making things worse
Tim writes about technology and consumer goods stocks for The Motley Fool. He's a value investor at heart, doing his best to avoid hyped-up nonsense. Follow him on Twitter: Follow @TMFBargainBin
A guidance cut, and a questionable strategy
Given the weak second quarter, GameStop lowered its already terrible full-year guidance:
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