GameStop: Not Worth Your Investment But I Would Not Short-Sell It Either

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GameStop (NYSE:GME) banal has mislaid almost 66% of its worth arsenic of nan clip of penning since my alternatively cautious article published successful June 2021. At nan aforesaid time, it is still trading complete and supra what it utilized to waste and acquisition for earlier nan January 2021 meme banal rally. In this article, I would for illustration to analyse nan company's basal changes.

GME stock

As tin beryllium seen from nan sketch below, GME banal has substantially plunged since nan banal buying frenzy astatine nan opening of 2021. At nan aforesaid time, it is still sufficiently supra nan levels seen earlier nan meme banal rally.

Data by YCharts

This tin beryllium moreover amended seen connected nan 3-year chart beneath borrowed from MarketWatch. In 2020 earlier nan monstrous rally successful early 2021 nan banal value was little than $3. However, it quickly soared to much than $75. The banal value has fallen importantly since then. It has moreover depreciated from nan levels mentioned successful my erstwhile article. But strangely enough, nan shares person not returned to their erstwhile levels reached earlier nan meme banal mania.

MarketWatch

I would for illustration to talk nan caller changes and besides explicate really logical aliases irrational nan existent valuations whitethorn be.

GameStop's basal changes

Last twelvemonth was reliable for video crippled stocks. Consumer spending plunged somewhat successful 2022. This tin besides beryllium said astir GameStop which suffered from decreasing income and rising nett losses.

In fact, GameStop has been signaling antagonistic EPS since 2018. I prepared respective graphs presenting GameStop's net and revenues.

The first sketch shows nan company's quarterly EPS history. As you tin see, only astatine nan opening of 2021 did nan institution negociate to grounds affirmative EPS of conscionable complete 20 cents per share. The different quarters were each loss-making. Some GME banal optimists whitethorn constituent retired that nan banal value reflected nan company's improving capacity astatine nan time. But no.

Data by YCharts

In bid to spot nan bigger picture, I decided to besides comparison nan 10-year yearly EPS to nan banal value complete nan aforesaid period. It looks staggering conscionable really small worth nan banal provides. Strangely enough, erstwhile nan institution was doing comparatively well, managing to grounds affirmative net per share, its banal was worthy good beneath $12 per share. Right now GameStop's nett profit is negative, its net person sewage worse moreover compared to nan 2021 levels. At nan aforesaid time, nan effect of nan meme banal rally, successful my view, did not wholly fade. Only this tin explicate nan levels nan banal is trading astatine now.

Data by YCharts

One mightiness deliberation that nan institution is trading astatine these levels because of its rising revenues. Not astatine all.

GameStop's quarterly revenues person decreased compared to nan opening of 2022 and nan early 2021 levels.

Data by YCharts

The income autumn is moreover much striking if we spot nan 10-year yearly income history. Compared to 2016 nan revenues person fallen by much than 50%.

Data by YCharts

Although nan institution is not moving retired of cash, its financial position is not superb either. GameStop's bonds are rated arsenic "B" by S&P Global. This intends that nan institution presently has nan capacity to meet its financial obligations. However, analyzable business and financial conditions arsenic good arsenic outer factors will apt impact nan company's expertise to meet its financial commitments.

This tin intelligibly beryllium illustrated pinch a fewer excerpts from GuruFocus. They each bespeak GameStop's financial position.

To commencement with, GameStop's liquidity ratios connote nan institution is not headed for bankruptcy successful nan adjacent term, though.

GuruFocus

At nan aforesaid time, it would beryllium alternatively difficult for GameStop to salary each its existent liabilities consecutive away, moreover though nan rate raised past twelvemonth made nan crippled company's liquidity position substantially better.

GuruFocus

I would besides for illustration to person a look astatine GameStop's rate travel history. Unfortunately, since 2020 nan institution has been signaling negative rate flows. This is mostly owed to nan nett profits that person been struggling since 2018.

GuruFocus

So, fundamentally, nan banal does not look to beryllium sound enough.

Risks

You mightiness beryllium wondering if it is simply a bully banal to short-sell now. I would personally enactment distant from some buying and short-selling it. The logic why I americium advising my readers to enactment distant from betting against this banal is that GME banal is simply a celebrated speculative instrument. Indeed, erstwhile location is a short squeeze, GME is 1 of nan fewer stocks that marketplace participants usage to estimate on. So, location is simply a consequence for GME shares to unexpectedly surge.

I would not bargain GameStop's banal either for nan pursuing reasons:

• The fundamentals are poor, whilst nan banal value does not rather return this into account. The marketplace would yet recognize this.
• The marketplace situation mightiness change. The Fed is rather hawkish, and nan rising liking rates mightiness provoke a recession, which will evidently impact nan not-so-high-quality stocks.
• The company's financial position mightiness get worse owed to rising nett losses. The rate levels mightiness autumn further. In bid to enactment afloat, nan institution will person to rumor much shares, frankincense diluting its existing stockholders.

Valuations

Let america besides person a look astatine GameStop's classical valuation ratios.

As I person mentioned before, nan institution is loss-making. So, I americium not taking nan price-to-earnings (P/E) ratio. Instead, I will usage nan EV-to-EBITDA, nan price-to-sales (P/S), and nan price-to-book (P/B) ratios.

Data by YCharts

To commencement with, GameStop's P/S ratio suggests bully worth for money, particularly if we comparison it to nan levels reached successful 2021. However, fixed nan deteriorating financial indicators, specified a P/S is alternatively a motion of a worth trap.

Data by YCharts

The existent P/B paints a image of an overvalued company. It is presently supra 5, which is sufficiently supra nan perfect 1 to 3 range.

Data by YCharts

Even GameStop's EV-to-EBITDA has been staying antagonistic since 2019 because nan institution has been reporting antagonistic EBITDA (earnings before interest, taxes, depreciation, and amortization) for a while.

So, we cannot opportunity GME banal is simply a worth play. In fact, conscionable nan other is true.

Conclusion

GME banal is not worthy your investment. Its results person not improved since then. Even nan raised rate was owed to stock dilution. I understand this is simply a communal measurement for loss-making companies to raise cash. This allows businesses for illustration GameStop to debar bankruptcy. Yet, nan fundamentals do not show galore different signs of improvement. At nan aforesaid time, nan existing shareholders mightiness use if location is different rally for meme stocks. I would beryllium gladsome for GameStop's stockholders if that happens. In my view, it does not make immoderate consciousness to bargain GME stock, though. Yet, I would not short-sell GME. So, my standing is "Neutral" and truthful unchanged.

A investigation expert and a freelance writer looking for worth finance opportunities. I person respective years of investing experience. I americium mostly willing successful penning astir bargain stocks of ample companies. My liking is not constricted to American companies but extends to firms operating successful different countries but listed connected US banal exchanges.