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GameStop Stock: Volatility is Part of the Game

GameStop (GME) stock, the epitome of the meme stock craze, remains highly volatile. Shares of this videogame, consumer electronics, and gaming merchandise retailer are down about 7.4% in Thursday’s premarket, despite reporting mixed Q2 results with improvement in both top and bottom line on a year-over-year basis.

For those who do not know, GameStop stock skyrocketed to $483 apiece from $17 at the beginning of this year. The short squeeze initiated by the retail investors led to this astounding growth in the stock. 

While its stock price has cooled off a bit, it’s still up about 1,052% on a year-to-date basis. (See GameStop stock charts on TipRanks)

It’s worth noting that GameStop stock has negative indicators from insiders and individual investors. Meanwhile, hedge fund managers have decreased their holdings by 5.0 million shares over the last quarter.  

TipRanks data shows that insiders have sold GameStop shares worth $413.8K in the last three months. Meanwhile, TipRanks’ Stock Investors tool indicates that investors currently have a Very Negative outlook on GameStop stock, with 4.0% of investors who hold portfolios on TipRanks decreasing their exposure over the past 30 days.

Nevertheless, the company’s initiatives to transform from a videogame retailer into a tech company offering gaming, entertainment, and other products are encouraging. 

However, I maintain a bearish outlook on GameStop stock as I believe the massive move in GameStop stock is not backed by equally strong fundamentals. 

Coming back to its Q2 performance, GameStop’s net sales increased by about 26% year-over-year to $1.18 billion and came ahead of the Street’s consensus of $1.12 billion. Its adjusted loss per share narrowed to $0.76, compared to $1.42 in the prior year. However, it compared unfavorably with the analysts’ estimate of a loss of $0.67 a share. 

On TipRanks, GME commands a Moderate Sell consensus rating, based on 2 Holds and 3 Sells. With its parabolic move in 2021, the average GameStop price target of $88.33 implies 55.6% downside potential to current levels.

Disclosure: On the date of publication, Amit Singh had no position in any of the companies discussed in this article.

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