The saga of GameStop’s stock price has been nothing short of a rollercoaster ride, captivating the attention of both investors and the general public alike. Once a struggling video game retailer, GameStop underwent a remarkable turnaround thanks to a group of retail investors who rallied behind its stock price at the beginning of 2021.
Despite the initial frenzy waning, GameStop continues to be a hot topic among investors, especially those with a penchant for high-stakes investment opportunities. In the investing world, certain stocks hold a special appeal, and GameStop (NYSE: GME), particularly as a “meme stock,” is a prime example.
Understanding the volatility of GME stock is essential for anyone considering delving into this realm of high risk and high returns. The surge in speculative trading and a notable increase in call option bets on GameStop’s shares have been responsible for significant movements in the company’s stock.
GameStop’s recent performance
Wall Street is anticipating GameStop to report a robust fourth quarter for the fiscal year, with an expected EPS of £0.30. However, revenues for the quarter are projected to decline by about 8 per cent from the same period a year earlier to £2.05 billion.
Updates on the company’s revised investment strategy and the quarterly disclosure of shares registered with Computershare, the transfer agent, could have an impact on GameStop’s share performance. Reducing selling, general, and administrative (SG&A) expenses is an important area to keep an eye on, as any earnings beat could be the result of cuts in this sector. The company’s performance might surprise investors with more positive revenue estimates, buoyed by the video game industry’s growth and GameStop’s standing as a prominent retailer.
Understanding the volatility
GameStop Corp. has demonstrated a -0.0862 per cent return on risk over the last three months. GameStop Corp’s market risk adjusted performance of (0.29) and standard deviation of 3.93 are critical indicators to gauge the volatility present in the company’s price movement.
Market volatility can be advantageous for companies like GameStop Corp., offering investors chances to profit from stock prices. It presents ideal conditions for long-term investors to purchase undervalued GameStop Corp. shares or to sell them when its price rises to purchase other stocks.
The role of leadership
After activist investor Cohen acquired a substantial position in GameStop in 2020, the company has seen several departures from its C-suite. GameStop has a strict equity ownership policy requiring executives and directors to maintain a significant position in the company’s common stock. The departure of previous executives may be attributed to this policy and Cohen’s commitment to the “skin in the game” approach, which has resonated with retail investors.
GameStop’s executive ownership strategy reflects the company’s commitment to its shareholders and the maintenance of a high share price. The company’s dedication to its shareholders has ensured the continued loyalty of the retail investors who have passionately bought the stock over the years.
The bottom line
GameStop currently trades slightly below par in EV/S and P/S, but otherwise, its multiples are significantly different from industry averages. Investors should be cautious as the company’s low multiples likely reflect its muted outlook for revenue growth in the face of declining yearly sales.
However, it’s debatable whether investors should base their investment thesis solely on value multiples, given the weak correlation between GameStop’s trading success and valuation in recent times.
Disclaimer: Investing money comes with inherent risks, and we advise individuals to never invest more money than they can afford to lose and to seek professional advice before doing so.