GameStop’s (NYSE:GME) popularity has waned, evident in its low average daily trading volume of 6.17 million, just 8.3% of the SPDR S&P 500 ETF Trust. With fundamentals askew and community-driven investing dwindling, GME stock faces challenges.
Recent earnings reports depict a bleak picture, with a 14.1% year-over-year decline in the company’s collectibles segment and declines of 7.7% and 8.8% in the hardware and software business units, respectively.
Here are some more reasons investors may be best-served by steering clear of GME stock altogether.
Declining Sales and GME Stock
GameStop witnessed a decline in third-quarter sales across most global markets. Despite the revenue dip of 9.1% to $1.078 billion, the company broke even through expense reduction and revised investment policies.
The stock initially dropped, but rebounded following its earnings. Since then, shares have remained wobbly, though resilient.
GameStop made significant cuts, reducing selling, general, and administrative expenses by 24% to $296.5 million. The board approved a new investment policy, granting CEO Ryan Cohen authority over the firm’s portfolio, enabling investment in equity securities.
Despite recent gains, GameStop’s shares remain far below their peak, after hitting their lowest level since the 2021 meme stock craze in late-2023.
The Boat is Still Sinking
In November and December 2023, GameStop witnessed a pre-earnings rally that now appears as a short-lived “dead cat bounce.”
Despite holding steady on earnings day, the stock quickly entered a sell-off mode after the results were released. The recent gains may soon be reversed, with sentiment shifting back to bearish, despite some seemingly positive news.
In the era of “meme stock mania,” enthusiasts pledged unwavering support for GameStop and other meme plays, vowing to hold with “diamond hands.” However, this sentiment is a thing of the past, especially evident in the market’s response to the recent GME stock earnings release.
Despite an earnings beat with zero earnings per share against an expected negative eight cents per share, GameStop’s quarterly revenue of $1.08 billion fell short of forecasts by $100 million. Fair-weather friends swiftly reacted to these less-than-stellar results.
Cohen Strays Away from Video Games
GameStop, facing challenges, expanded CEO Ryan Cohen’s authority, granting him control over corporate investments. Changes include allowing company funds to invest in stocks, expanding beyond short-term debt.
Mr. Cohen oversees the company’s investments in public and private markets, with authority granted by the Board of Directors. The filing notes that Mr. Cohen, personally or through affiliated entities, may invest in the same companies as the company, aligning interests and sharing risks.
The company opted not to conduct a quarterly conference call with analysts, a move criticized by Wedbush’s Michael Pachter as “inane” and “alarming.” Pachter suggested that if GameStop believes in the value of its shares, it should use excess cash for stock buybacks. This decision coincides with challenges in Ryan Cohen’s turnaround efforts at GameStop.
Avoid GME Stock at All Costs
GameStop’s prominence has waned in financial history, portraying a retailer grappling with obsolescence amid digital gaming platform dominance. The unimpressive balance sheet intensifies challenges, relying on CEO Ryan Cohen’s turnaround strategy.
With anticipated struggles in the approaching holiday season, marked by poor sales and store closures, GME stock appears poised for disappointment in 2024, making it a candidate for investors to exclude from portfolios.
On the date of publication, Chris MacDonald did not have (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.