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Gamestop stock ($GME): The Good, The Bad & The Ugly

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It’s been quite the eventful few weeks for GameStop Traders. We’ve been barraged with requests to continue coverage on this current eventful week in GME stock. Much has been said and written about this stock over the past 3 years. So let’s recap the story for those who are unaware.

The GME story thus far

GME changed the market in 2021 when it ushered in millions of new retail traders into the market with the allure of an epic short squeeze of the stock that at the time was reported to have been shorted 140%, well beyond the total number of shares. At the center of it all was Youtuber and Redditor Keith Gill, also known as Roaring Kitty. Roaring Kitty rose to fame with his 50k bet on Gamestop’s business transformation that turned into tens of millions.

When hype reached critical mass, the retail traders were “betrayed” by their broker of choice, Robinhood, who disabled further buying of Gamestop shares & options. This caused the stock to crash in dramatic fashion, dropping from highs of 485 to lows of 38$ in just a few weeks. This drop spurned many of the newly minted apes and prompted many casual observers and movie directors to deem the story concluded.

Those in the know however know that take wasn’t quite true. Roaring Kitty held onto his entire position through that entire roller coaster and was forced to testify on the most watched congressional hearing in the history of their Youtube channel. The stock roared back to life and continued the roller coaster for the rest of 2021 with more dips, rips and even a dilution. Within this chaos Roaring Kitty stepped away from his social media limelight. The legion of retail investors he inspired invested not only their money, but also their time into learning market mechanics, making theories that range from plausible to delusional and advancing long ignored conversations on market manipulation & reform.

Keith Gill at the congressional GME Gamestop hearing
Roaring Kitty’s congress testimony cemented his legend and brought GME back to life after the first run

Life after “The Sneeze”

After such a hot 2021 the stock cooled off significantly in he subsequent 2 years. The company, now headed by Chairman Ryan Cohen, began it’s long awaited transformation. They hired new talent like Loopring Business Director Matt Finestone, e-commerce wiz Kelli Durkin, defi enthusiasts Jordan Holberg & Ryan Kagy, and Amazon standout Matt Furlong at CEO. Things looked bright for the new Gamestop.

The transformation however was not the master stroke that bulls & apes had hoped for. 2022 & 2023 was mired with blunders and scars for GME. It started with a pivot into Web3 and NFTs, which ended up being spectacular flop, punctuated by an ill fated partnership with FTX mere months before their collapse. The influx of fresh new talent from e-commerce and Web3 departed the company in this short timeframe. After CEO Furlong departed, Ryan Cohen took up the mantle of CEO. To date, the company under CEO Cohen is ran very similar to any other death spiral business: Shuttered locations, desperate cost cotting manuvers like closing fulfillment centers they just bought to employee healthcare and of course mass layoffs.

So of course when 2024 came around and the stock hit prices akin to it’s pre split February 2021 lows there was little to be excited about. However, a few weeks ago a certain Kitty’s social media accounts came roaring back to life. Keith Gill began posting on social media, again expressing a bullish sentiment on Gamestop sending the stock flying and once again reinvigorating the “apes”. This brought gains as high as 600% into the stock from it’s 2024 lows. A surprise share offering from Gamestop didn’t stop the hype that went into a fever pitch on the announcement of his first livestream since the self imposed hiatus.

Gamestop goes rogue

So now we’re caught up to this past Friday. On this day Gamestop not only released an early negative earnings report, but announced yet another dilution that is almost twice the amount as the one from a couple of weeks ago. This of course sent the stock tumbling as Kitty went on live for a largely uneventful stream.

All caught up now? One thing to notice from this recap is how little the fundamentals of the company has been a part of this conversation. Memes, hero worship, livestreams, conspiracies. It seems like everything gets discussed with this stock except how much money they make with their actual business. While the volatility and gains Gill has made may convince some that fundamentals don’t matter, days like Friday June 7th are a sobering reminder that fundamentals do in fact matter.

Fundamentals always matter

Take for example Nvidia, another stock that’s been on a tear in 2024. This is a company that actually makes money hand over fist, so when their stock rips higher they don’t feel innately compelled to dilute investors for the health of the business. They are healthy and have enough cash to operate without milking the stock cash cow.

Gamestop is in the opposite position, boasting no debt and billions in cash reserves that has 100% come from the pockets of their investors. The Ryan Cohen era has been defined with constant earnings misses, failed transformation attempts, downsizing to slow the cash burn of the money they diluted from their faithful shareholders, declining revenues and silence on any plan to fix all these issues. This is a similar dynamic to the AMC stock ($AMC) of AMC Theaters, a company aggressively diluting their faithful shareholders as their only path to bringing money into the company. However this dynamic is repellent to bringing in the optimistic new investors that help set new highs in the stock. It all matters.

Lessons To Learn

So where does this leave the Apes? Events like these can certainly take the wind out of the sails of newbie traders, unable to understand the psychology of a market that just seems to exist to screw them over. However Turbo Option Trading is filled with professionals with decades of experience to remind you that this market is mankind’s greatest wealth creation device when used correctly.

If you’re one of the thousands out there burned from stocks and hype events like this, don’t be discouraged. These are learning opportunities to become better traders and we implore you to take action today and trade effectively. As Tommy Trader says “Falling in love with a stock or company may feel nice, but the company doesn’t love you back”. You don’t need to have faith in executives or be a cog in the wheel of making a corporation money. Take the steps today to ensure that you are the one in the drivers seat building wealth for yourself and your family.

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