GameStop stock price has been witnessing a bizarre game for the last few days.
Although this kind of game is not new in the stock market, but certainly investors of every category (common investors, Robinhood traders or hedge funds) should consider it as a lesson.
After all, what was the reason that within a few days the price of the GameStop company increased from $ 20 to $ 483. And soon the stock price crashed to $ 50.
In the year 2020, the Indian company Ruchi Soya Industries (RCSY) saw a similar rise and fall (almost).
Let us try to find out what has happened to the GameStop stock price based on the sources of all the studies. And now what is the position of the company’s fundamentals and technicals?
What is GameStop?
GameStop Corp. is the largest video game retailer in the US or simply in the world. It is now an omnichannel American company as a video game, consumer electronics and gaming merchandise retailer.
The company is about 37 years old founded in 1984 in Dallas. Now the company’s headquarter is in Grapevines, Texas, United States.
Why is GameStop in the news?
This is due to a tremendous move in the GameStop stock price. Although the reason behind such orchestrated moves of GameStop stock price is believed to be ‘short squeeze’.
Short Squeeze
This is a special situation of stock trading where the shares are purchased against someone else’s big short position. Buying in shares leads to price rise and short position comes under pressure.
And to close the last short position, one has to buy shares at the current market price. Due to which the share price increases wildly in a short time.
Let us understand the events of GME stock getting stuck in the short squeeze situation. There were some trigger points that played a significant role.
- Ryan Cohen, co-founder and former CEO of e-commerce company Chewy, is a big name in the digital business. He invested money in the company GameStop in the month of September 2020. He disclosed a 10% stake in GameStop. And thus he became the largest individual investor in the GameStop company. On December 17, 2020, he increased his stake to 12.9%.
- The investment by Ryan Cohen attracted the attention of investors to the GameStop stock price. Investors became optimistic towards the stock price in hopes of a major digital evolution.
- In addition, in the month of December, 2020 the company has shown a growth of over 200% in the digital business (e-commerce).
- All these were discussed on WallStreetBets, a popular forum on the social media site Reddit, and also on YouTube. Robinhood (USA’s discount broker company) traders, who were members of r/wallstreetbets, traded long positions in shares of GameStop.
- Whereas investors started to understand value investing in GameStop stock price. On the other hand, some hedge funds such as Melvin Capital created huge short positions in GameStop shares which were more than 140% of the entire capital of the company. You might think that they were hoping that the company has been doing business in offline gaming for a long time and could not perform better in future.
- On 25 January 2021, GME touched $150 in a volatile trading session.
- On 27 January 2021, Tesla company owner and the world’s richest man Elon Musk tweeted, “GameStonk!!” This likely prompted investors to invest in GameStop shares further.
- On the same day, 27 January 2021, hedge fund Melvin Capital closed its short position in GME after a loss of Rs 18,000 crore ($2.5 billion).
- On January 28, 2021, GameStop stock price skyrocketed and touched an all-time high of $483. But, the situation became worse for Robinhood investors / traders on the same day when several broker companies including Robinhood banned the purchase of shares.
- Although Robinhood lifted the restriction on the purchase of shares on January 29, 2019, the share price started to fall drastically. Apparently some investors will also be stuck at the upper levels.
- Overall, in this entire development, hedge funds have been estimated to have a total loss of about Rs 43,000 crore ($6 billion) and about Rs 2 lakh crore ($30 billion) in the market cap of the company.
It is clear from the entire spectrum that nobody took care of the basic rules of investment.
Note – All prices are in US Dollars.
GAMESTOP STOCK PRICE Explained and GME Stock Forecast
Fundamental Analysis of GameStop Stock Price
Here, my attempt is to emphasize the analysis of both fundamentals and technicalities to understand the actual situation of GameStop stock price.
Note: I would strongly suggest that you as a sincere investor / trader must read both these posts. related to fundamental analysis- 1. Fundamental analysis of stocks and 2. How to analyze the balance sheet of a company.
As you know fundamental analysis should be started at three levels.
1. At the level of whole economy – If we talk about the entire economy of the country, it seems that the economy of the United States is improving rapidly.
Real gross domestic product (GDP) increased at an annual rate of 4.0 percent in the fourth quarter of 2020, reflecting both the continued economic recovery from the sharp declines earlier in the year and the ongoing impact of the COVID-19 pandemic, including new restrictions and closures that took effect in some areas of the United States. In the third quarter, real GDP increased 33.4 percent. (Source: BEA – an official website of the United States government)
2. At the level of industry – The company deals with the retail (technology) industry under the services sector. Therefore its demand is expected to remain constant. Conn’s Inc, Best Buy, Nintendo, Microsoft, Taitron company, are industry peers to compare with GameStop Corp.
3. At the level of specific company – In today’s digital era, GameStop or similar companies are facing huge challenges. Physical game media is towards decline. Let’s find out the features and drawbacks of GameStop as a company.
Features of GameStop Stock Price
A brief description is here.
Nature of Business
GameStop has long been rooted in the new and pre-owned software business. But now the company has started realizing the effects of the changing market and is trying to strengthen its grip in online gaming.
The company is in the business of selling video game hardware, physical and digital video game software and accessories.
It is now operating under two main segments:
1. Video Game Brands– It is the first business model of GameStop which gives the company the highest revenue roughly up to 80%. There are further sub-segments of the company’s business –
- New video game hardware – Generates approx. 16% of total revenue
- New video game hardware – Generates approx. 29% of total revenue
- Pre-owned and value video game products – Generates approx. 26% of total revenue. Game Informer, a subscription based magazine, GameStop PC, GameStop TV and GameStop Kids are popular means of business for the company.
- Video game accessories – Generates approx. 8% of total revenue
2. Technology Brands– The second business is the Technology Brands created during the last quarter of 2013. Which generates approx. 20% revenue. Simply Mac, Spring Mobile and Cricket Wireless operate under several retail outlets in this segment.
Management Processes
The company’s past performance and growth rate do not reflect its good management. Gamestop’s Chief Executive Officer and Director is George Sherman since March 2019. The company has an executive team of 8 members in addition to the CEO.
Shortcomings of GameStop Stock Price
Some of the risks and concerns associated with GameStop are as follows-
- GameStop has closed more than 800 stores by the end of 2020.
- Like movies, games are available for streaming or for download as is Playstation Now. GameStop does not yet have this type of market.
- GameStop needs to change its business model around digital gaming more.
- GameStop has not been a profit-making company like its earlier performance.
Quantitative Fundamental Analysis of GameStop Stock Price
Let’s take a look at how GameStop’s financial statements and financial ratios give the company’s future prospects.
If you look at the data for the last five years (FY 2015-2019), you get –
- The company’s revenue is in almost continuous decline. It has fallen from US$9.3638 billion in the year 2015 to US$6.466 billion in the year 2019.
- Operating income was US$ -464.4 million (2019), which increased slightly compared to last year.
- Net income was US$ -470.9 million (2019), which also increased slightly compared to last year.
- Total assets decreased from US$4.33 billion (2015) to US$2.82 billion (2019).
- Total equity decreased from US$2081 million (2015) to US$611.5 million (2019).
- The results of the third quarter2020 have raised some good expectations for the 4th quarter results coming in March 2021.
Key Statistics of GME Stock Price
| Financial Element | Value |
| Scrip code and symbols | NYSE: GME |
| GameStock share price today (February 12,2021) | $52.31 |
| 52-WEEK HIGH (28-Jan-2021) | $483.00 |
| 52-WEEK LOW | $2.57 |
| Market Capitalization | $3.65 billion |
| Latest Dividend per share | $0.380 |
| Latest Dividend Date | March 14, 2019 |
| % of Insider Shareholders | 2.40% |
| % Float | 97.60% |
Financial Ratios of GME Stock Price
| Financial Ratio | Value |
| EPS – (TTM) ($) | -4.18* |
| P/E forward | 4.89* |
| Industry P/E | |
| P/B Ratio (x) | 9.87* |
| Profit Growth | % |
| ROE | -33.58% |
| EV/EBITDA | |
| PEG Ratio |
Intrinsic Value of GameStop Stock Price
Intrinsic value of any stock can be calculated by Benjamin Graham’s Formula:
Intrinsic Value = [EPS x ( 8.5 + 2g) x 4.4]/Y
Since EPS and growth of the company are negative (annually). Hence we take EPS(ttm) = 1 ; Assumed future growth rate, g= 0% and Today’s Interest rate of AAA Corporate Bonds in USA, Y= 2.6 , it gives the intrinsic value of GME stock = $14.38. (Take this calculation just an example to learn the way)
GameStop Stock Price Chart
Image source: Investing.com
Technical analysis of this stock on February 12, 2021 at CMP $52.30 indicates the following important points-
- Both the upper and lower bands of Bollinger bond are parallel. Which means the stock price is not expected to be much movement yet.
- The 200-day EMA is not available. And the stock price is close above the 50-day EMA of 1374 but below 20-day EMA of 1407.60. Closing above or below will decide the short term trend.
- The RSI value is 46. Let it reach near 30 to buy for long term.
- Technical indicators are not able to tell if the share price is overbought or oversold.
GameStop Stock Price Target and Forecast
I believe that you should invest in GME stock with more caution.
With the help stock calculator, the targets calculated for this financial year are as follows: (will update soon)
| Target1 | Target2 | Target3 | Target4 | |
| above – UPTREND Targets | ||||
| below – DOWNTREND Targets |
CONCLUSION
There are plenty of stocks to invest in where opportunities can be discovered. GME stock can also be a good investment, just need to keep looking at its quarterly results.
But right now there is a need to take a lesson from this stock’s wild move. Because forgetting the fundamental things related to investment in the stock market, from big hedge funds to common investors have fallen victim to this unexpected event.
Loved the post and if you have some more time, do share and comment.
4 thoughts on “GameStop Stock Price Explained | GME Stock Forecast [2023]”
Nicely explained! I love reading your blog. Also, you have briefed about GameStop. This will help new readers understand the company before reading about its stocks and their performance. Also, novice investors will find this piece of article informational.
thanks a lot.
The short squeeze and game stop was a fun banter which we should learn from. If investors want they can sway the market in whichever direction they want and help companies grow.
Thank you. Maybe not even!