GameStop (NYSE:GME) remains among the most volatile stocks in the market. Media attention on GameStop stock can be both beneficial and detrimental for investors.
High borrow fee rates and significant volatility make this a very difficult stock to gauge in terms of where it will trade over any time frame.
The reality is that GameStop’s fundamentals have gotten forgotten in this meme stock trading debacle.
The company’s extremely high price-earnings ratio of roughly 300-times suggests investors are betting on quite the turnaround with this flailing bricks-and-mortar video game retailer.
These metrics come at a time when analysts are predicting growth should slow dramatically, with no profit likely to come this quarter.
I’m of the view that more downside is ahead, but at current levels, this is a dangerous stock to short. Here’s why I think the party’s likely over for speculators of all types in this name.
GameStop Stock Rides Meme Stock Frenzy
GameStop’s Solana-based meme coin, GME, surged 17% in U.S. trading, trading at $0.008691 with a market cap of around $59 million. Trading volume rose 30%, indicating increased trader interest.
Whenever a company moves into the crypto realm, that’s typically a red flag of sorts, whether crypto enthusiasts want to admit it or not.
While this meme coin has seen strong momentum over the past month, it’s clear that the return of Roaring Kitty (Keith Gill) in early May influenced its recent performance, echoing notable spikes in GameStop stock.
Roaring Kitty’s recent social media post featuring a dog image sparked gains in pet-related stocks. GME joins WIF and BOME as a key player in the meme coin market, potentially surpassing competitors in June.
With a bullish trend, GameStop stock aims to break resistance at $0.0084, possibly reaching $0.01. Further increases could propel it to $0.1 or even $1 in future bullish cycles.
This meme token could certainly surge higher, and could potentially take retail investors’ eyes off the stock market. If that’s the case, the entire meme thesis around GME stock certainly could be further impaired.
More Gamble Than Investment
I’ve long thought hitting the blackjack tables may be a better investing strategy than buying GameStop stock, for various reasons.
For one, I think having a 48% chance of winning (playing perfectly) could be better odds than predicting where this stock goes over any period of time.
As far as a “random walk” is concerned, this is a stock that certainly appears to move in a fashion that’s more akin to cards coming out at a gaming table.
With over 40 years of trading experience, various expects believe GameStop stock remains among the most speculative investments in the market.
That’s largely due to fundamentals. The company’s first-quarter sales dropped 29% year over year, with a $32.3 million loss compared to $50.5 million previously.
Analysts predict continued losses for the next two fiscal years. The company maintains 4,169 stores globally, despite the retail shift to digital, leading to sustained pressure on profit margins.
GameStop Stock is Seeing Deeper Drops
GameStop has clearly remained popular among retail investors, but its financials leave much to be desired.
In Q1, GameStop reported a $32.3 million loss on $882 million revenue, down from a $50.5 million loss on $1.2 billion the previous year. Sales of hardware, software, and collectibles declined. Analyst Adam Crisafulli noted the figures were ugly but in line with earlier forecasts.
GameStop’s stock dropped 39% from $28.22, with trading paused over 15 times due to volatility.
Shares rose after Gill went on social media announcing his $116 million GME shares. 2023 net sales also declined from the previous years’s $5.9 billion, reaching only $5.2 billion.
I’m Not Dipping My Toes In This Water
There are plenty of other options for speculators to get their risk on with in the market.
Moving out the risk curve can take many forms. But in this market, speculating on meme stocks just doesn’t seem like a solid move.
I think both short sellers and bulls on this name are likely to get equally burned. It’s just not a trade worth making, in my view.
Accordingly, I’ll be happily watching the mayhem from the sidelines.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.