The recent rise in GameStop (NYSE:GME) shares was short-lived and proved once again that this is a meme stock investors shouldn’t trust. Earlier in May, video game retailer GameStop’s stock rose 20% on news that Keith Gill, aka “Roaring Kitty,” had returned to social media after a three-year absence.
Gill’s bullish analysis of GameStop on Reddit page WallStreetBets during the 2021 meme stock craze sent the company’s share price soaring back then. It briefly looked like GME stock was headed back to the moon. But the rally quickly fizzled and GameStop stock is back to trading at the level it was at before Gill resurfaced.
Fleeting Hope
GameStop stock led a batch of former meme stocks sharply higher immediately after Gill returned to social media on May 12, posting a cryptic message on X (formerly Twitter) that was apparently meant to show he’s again paying attention to what’s happening with GameStop.
GME stock jumped nearly 200% higher in two days, reigniting beliefs that the meme stock craze was back in full-swing. However, the rally quickly peaked and by the end of the week GME stock had fallen 54% and was back to its former trading pattern.
Gill’s intention with his social media post is unclear. Gill, a former CFA and licensed broker in Massachusetts, reportedly turned $53,000 into $50 million with the GameStop short squeeze.
In early 2021, GameStop stock peaked at $483 per share before crashing back to earth. GME stock is down 23% over the last 12 months, missing the current bull market entirely.
True to form, GameStop sought to capitalize on the brief surge in its share price. The company announced plans to sell 45 million additional Class A common shares in an at-the-market offering.
News of the dilution sent GME stock down 20% before it rebounded on news that the company earned $933 million from the stock sale.
Bad Finances
Sadly, apart from Roaring Kitty’s return, shares of GameStop don’t have a lot going for them. The company’s attempt to transition to online sales has failed, causing financial difficulties.
GameStop stock fell 18% in late March after the video game retailer reported weak financial results for the final quarter of 2023.
GameStop announced earnings of 22 cents a share and revenue of $1.79 billion for Q4 of last year. Analysts on Wall Street had expected earnings of 30 cents per share and sales of $2.05 billion.
The company reported that its hardware and accessory sales fell 12% year-over-year to $1.09 billion, while its software sales declined 31% to $465 million.
The company’s sales have steadily eroded as consumers purchase digital game downloads and sales of physical console games decline.
When announcing its recent stock sale, GameStop also provided preliminary results that showed a drop in its first-quarter 2024 sales.
The company said it now expects Q1 revenue of $872 million to $892 million, down from $1.24 billion in the same quarter a year earlier. Two analysts polled by FactSet had expected Q1 revenue of $1 billion. GameStop next reports earnings on June 5.
The poor earnings and lack of any forward guidance from the company have been bad enough. But GameStop has also announced a new scheme that will see CEO Ryan Cohen invest the company’s excess cash in stocks and other securities, including crypto. Analysts have heavily criticized the move as having the potential to make a bad situation worse.
Sell GameStop Stock
Estimates are that retail investors who jumped back into GME stock on the return of Roaring Kitty quickly lost a combined total of $13.1 billion. Sadly, this isn’t the first time that investors have been burned by either GameStop or Keith Gill.
At the end of the day, GameStop is a failing video game retailer whose share price is sinking. The fundamentals at the company are abysmal. Even a short squeeze can’t change that fact. As such, the so called “dumb money” would be smart to avoid this stinker. GameStop stock is not a buy.
On the date of publication, Joel Baglole 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.