Does GameStop’s Recent Rally Make Its Stock A Worthy Investment?

GameStop has looked pretty down and out in recent years, but is its recent rally a sign that things could be looking up?

Jan. 14, 2021

I’ll admit, GameStop (NYSE: GME) and I have a long, complicated history that stems back more than 10 years to a time when I tried to trade in several of my favorite games, which I — more likely my parents though — had spent a lot of money on. When I was offered a pittance for them, I took it personally. Fast forward more than a decade and its stock has been through some hard times, and the teenager in me who likes to hold grudges is a little bit satisfied with what he would call ‘poetic justice.’

However, the adult me is also happy to see a previously beleaguered business suddenly spring from the shadows with hope. Its stock enjoyed its most successful day ever as a public company yesterday, jumping nearly 60%. It is still a long way off of its 2007 all-time highs though, following years of failure to adapt its business model to the growing digital changes in gaming or the rise of e-commerce. 

Why then, is it suddenly on the rise once more?

“Should I buy GameStop stock again?”

A month ago, most analysts would be giving an outright “NO” if asked this. Its stock was falling, PS5 and Xbox Series X sales were a disaster due to supply issues, and its Q3 earnings were the usual disappointment we’d become accustomed to.

Then on Monday this week, GameStop suddenly announced its holiday sales figures as well as an update on its board members:

  • During the nine-week holiday period, comparable same-store sales grew by 4.8%.
  • E-commerce sales soared more than 300%.
  • GameStop also reached an agreement with RC Ventures, the company’s largest stockholder, to add 3 new directors with e-commerce and technology experience.

Not exactly setting the world alight, but there’s no denying that these are some impressive developments for a company that was all but finished in the eyes of investors last year.

Now, much of Wednesday’s wild gains have been put down to an apparent short squeeze, which is certainly responsible for some of the buying binge. After all, a week prior to Monday’s announcement, short interest on the videogame retailer’s stock exceeded the number of shares outstanding. Meanwhile, Wednesday saw more than 125 million shares had traded hands in the day’s session, compared with a 52-week daily average volume of 6.5 million shares.

However, bullish analysts do not believe that short selling is the primary catalyst behind this rejuvenation. Video game stocks are very popular of late, and a board shake-up means that change is afoot, This belief is reinforced by GME’s impressive holiday sales. 

Though I personally wouldn’t be rushing out to buy GameStop shares just yet, it’s a company certainly worth keeping an eye on. After all, many of the greats came back from the abyss; Apple, Chipotle, Muhammad Ali. Who knows?

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