Why GameStop (GME) Stock was Riding Higher
It has been a while since I have written about GameStop (NYSE: GME). I always receive polarizing responses and comments when I do. It’s not that I dislike GameStop’s stock, but I never really got caught up in the meme stock fever. Judging by how these stocks have performed over the past couple of years, it was probably a good thing. But earlier this week, GameStop soared higher by about 50% in after-hours trading and closed the week higher by 44%.
My first instinct was: is this another short squeeze? We haven’t seen GameStop move like this since 2021. I haven’t seen anything about a short squeeze on social media, so I was confused as to why the stock was moving so much. Then I read that GameStop had reported its quarterly earnings that day. Something big must have been announced. Here’s what they reported.
GameStop Posts First Profitable Quarter in Two Years
When I say that the meme squeezes separate the stock price from the fundamentals of the company, I mean it. I don’t think GameStop or AMC (NYSE: AMC) should ever have traded for as much as they did. I know that is going to receive some angst from meme stockholders out there, but it is true.
So it was to my surprise when I read that GameStop had produced its first profitable quarter in two years. The company had done some great work this year, even after the tepid release of its crypto wallet and NFT marketplace. Unfortunately for GameStop, these couldn’t have come at a worse time for the crypto industry.
But like many other tech companies, GameStop has been diligent in cutting its costs this year. This includes an ongoing exit from Europe, where it is closing down brick-and-mortar retail stores. GameStop is similarly pushing its online platform in North America, as it re-assesses its real estate footprint.
CEO Matt Furlong cited that GameStop is much healthier today than it was in 2021. It has worked to build up its cash position to more than $1.3 billion, and the cost-cutting has worked wonders as the company once again reached profitability. While most meme stock traders are probably still in a significant hole, it must be reassuring that the company is making strides to improve the health of its actual business.
Is GameStop Stock a Buy?
Let’s not get carried away now. I said the fundamentals of the company are coming back in alignment with the stock price at a more reasonable multiple. I didn’t, however, say I was about to buy the stock. I’d like to see management continue to execute and keep GameStop profitable for the next few quarters.
Do I think GameStop can make a full recovery? I think the company is much better off now than when it was trading for over $400.00 per share in 2021. Ryan Cohen and the executive group have done a great job with GameStop, compared to what Adam Aron is doing at AMC. I’m not buying either stock, but I can admit that GameStop is taking the first steps down the right path.
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