Video-game retailer GameStop (NYSE:GME) seeks to enter into the worlds of cryptocurrency trading and the metaverse, it seems. Is this a sufficient reason to buy GME stock, though? Probably not, as GameStop’s financial results are subpar. Meme-stock traders might not heed this warning, but long-term investors should check GameStop’s fundamentals before taking a position.
Reddit users started a revolution when they targeted GameStop for a short squeeze last year. It was exciting to witness but hard to profit from, as meme stocks have brief shelf lives and tend to decline as fast as they ascend.
The meme-sters might be back in action in 2022, though, and they could rally the troops around GameStop at any given moment. If you’re going to hold a stock position for more than a few days, however, don’t forget to check GameStop’s financial stats before committing any capital.
What’s Happening With GME Stock?
We haven’t seen a repeat of 2021’s wild ride, but GME stock did double from $20 to $40 a couple of times this year. Each climb has been followed by a share-price decline, though; evidently, meme-stock gains can lead to meme-stock pains.
Perhaps some new, decentralized-market ventures could get the short-squeeze crowd excited about GameStop again. For one thing, GameStop launched a non-fungible token (NFT) marketplace a couple of months ago. There hasn’t been much mention about this recently, though, and it’s too early to assess the NFT marketplace’s success.
More recently, GameStop disclosed a partnership with FTX, or more precisely, with FTX US. This is a cryptocurrency marketplace, and the stated purpose of the collaboration is to “introduce more GameStop customers to FTX’s community and its marketplaces for digital assets.”
Analyst Calls GameStop a ‘Mess,’ and Rightly So
GameStop’s meme-worthiness, and the company’s forays into NFTs and cryptocurrency, are all fine and well. Cautious investors, however, shouldn’t consider buying any stock until they’ve checked the company’s recent financials.
And, when it comes to GameStop’s financials, there are serious problems. To quote Wedbush analyst Michael Pachter, “Fundamentally, GameStop remains a mess.” Pachter backed this assessment up with, “The company has lost money for the last six consecutive quarters, and has lost over $700 million since January 2019” — messy, indeed.
Let’s see what GameStop’s second-quarter 2022 results reveal. Revenue of $1.136 billion indicate a slight year-over-year (YOY) decline and missed the analyst consensus estimate of $1.266 billion.
Meanwhile, analysts braced for GameStop to post a quarterly earnings loss of 42 cents per share. The actual result was a loss of 36 cents per share, or $109 million, so the bulls might claim a victory there. On the other hand, this result showed deterioration compared to the prior-year quarter’s earnings loss of $62 million, or 21 cents per share. So, any claimed victory here is a hollow one.
What You Can Do Now
I’m not quite prepared to call GameStop traders a “cult” like some people might. Yet, some bullish traders might be overly focused on GameStop’s NFT and crypto angles. The problem is that they’re ignoring the company’s “messy” fundamentals.
Don’t misunderstand — GME stock could pop back up to $40 without warning. Since it’s a meme stock, however, it could fall right back down to $20. It’s fine to play these meme-trade games in the short term, if that’s what you want to do. For the long term, though, fundamentals do matter, and GameStop’s fiscal data doesn’t support a confident investment now.
On the date of publication, David Moadel 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.