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?
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.
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’.
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.
It is clear from the entire spectrum that nobody took care of the basic rules of investment.
Note – All prices are in US Dollars.
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.
A brief description is here.
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 –
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.
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.
Some of the risks and concerns associated with GameStop are as follows-
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 –
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 | $0.380 |
Latest Dividend Date | March 14, 2019 |
% of Insider Shareholders | 2.40% |
% Float | 97.60% |
Financial Ratio | Value |
EPS – (TTM) ($) | -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 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)
Image source: Investing.com
Technical analysis of this stock on February 12, 2021 at CMP $52.30 indicates the following important points-
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 |
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.
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