The wildcat trade is over, Congress is investigating, prosecution is pending, and the SEC is considering the short sale. So what’s next for GameStop?
There are three things to consider in answering this question: core expectations, evaluation criteria, and stock trading possibilities.
GameStop’s core expectations are improved. The key ingredient is the increased focus on a growth strategy, driven by new engaged board members and fostered by new leadership additions capable of enhancing a known brand. So GameStop is on a higher plane than when it sold for $ 3-5 based on the sight of a weak post-Covid rebound.
GameStop benefits from the current valuation criteria of the stock market. In a rapidly growing market, preferred valuation metrics go beyond earnings and sales. These classic measures of value can be misleading when a company is rapidly developing its brand, products / services, locations, marketing, delivery, patents, acquisitions, etc.
Note: Many companies are currently or are joining this fast growing category (e.g. electric vehicle industry). Often their sales are low and their profits negative, yet their stock prices are high and rising. Crazy investors? No, quite the contrary. It is the realization that implementing a successful growth strategy means that the profit will come later.
The possibilities for trading GameStop shares are improved. When a stock is supported by unconventional valuation criteria, stock trading assumes a larger role. When a technical picture (stock chart) has familiar elements, investors are more willing to buy and hold. The activity of trader helps to create a strong market for the stock, thus providing both liquidity and a visible and accepted price range.
The current downside: GameStop’s debut – the company and the action
GameStop, the stock, has just finished a wild ride. That overheated engine bangs and slams now, trying to find a steady idle speed. This transition requires three ingredients: favorable fundamental news, desirable valuation metrics, and a technical confidence board.
The next step is to know the actual plans and strategies of GameStop. Presumably, these will be discussed on the March earnings conference call. From this information, investors and analysts can develop expectations about where the company is heading and what the important growth criteria should be.
The good news: a sales washout is likely
As for the technical table, some information is now at hand. However, the picture still contains abnormal movements and actions of investors / traders. With the previous higher prices still fresh on the minds of investors, there remain two groups of unstable shareholders: “Hangers-on”, who are hoping for a recovery (often to come back to par to avoid incurring a loss), and ” reentrants, “who consider the current price to be relatively cheap and, therefore, hope for further upturn. When the stock continues to stagnate or fall, these shareholders sell.
This final sale helps establish a price base that becomes visible when other investors start to buy. At this point, the stock can trade without extreme movements, claiming that the previous savagery is eliminated.
The following charts provide four different views of GameStop’s stock action.
The bottom line
GameStop has the potential to become a rebuilt growth stock. However, two developments must occur to make the potential real:
- An understanding of management’s goals and strategy
- A visible bottom settlement foundation construction stock model
So patience seems the best strategy now. Hopefully good things will happen. It’s always exciting to see a company reposition itself for the next uptrend in growth instead of getting bogged down in the past and gone.