After spiking following GameStop’s (NYSE:GME) latest quarterly earnings release on March 21, GME stock has held steady in the low-$20s per share. Managing not to cough back its most recent gains just yet, some may believe that shares in the video game retailer have the potential to rise further from here.

But while another “meme wave” could emerge out of left field, it may be a mistake to make this assumption. Why? While well-received, the company’s latest fiscal results, and the main driver of its stock, may signal the beginning of the end for GameStop.

I’ll admit that making such a statement sounds absurd, given that the company has around $1.4 billion in cash, and the stock manages to hold onto some semblance of its past meme popularity.

Still, taking a closer look at the details, it’s difficult not to be bearish about GME’s long-term prospects.

GME Stock: 2 Negative Takeaways from Earnings

Earlier this month, I discussed GameStop and its latest quarterly earnings report. In the article, I detailed how GME’s management, after failing to find success with its e-commerce and non-fungible token (or NFT) endeavors, has instead decided to focus mostly on maximizing the profitability of its bricks-and-mortar locations.

Thanks to aggressive cost-cutting, along with strong demand for video game hardware, GameStop was able to report positive earnings for the quarter, after several consecutive quarters of losses. Don’t get me wrong, improved profitability from cost reductions are just as legitimate as improved profitability from factors such as organic growth.

However, in the case of GME stock, it makes little sense that this has resulted in a more than 26% increase in the company’s valuation since the earnings release. The reasons for this are twofold. The first reason I argued strongly in my last article: by putting its “digital transformation” on hold, it makes even less sense that GME’s split-adjusted stock price remains well above pre-meme and pre-pandemic levels.

The second reason I touched on, but will go into further detail below: GameStop’s strategy shift potentially makes it the “new Blockbuster,” which goes without saying, is not a good moniker to attain.

History Repeating Itself?

As many may know, GameStop Chairman Ryan Cohen draws a lot of his investing philosophy from activist investing legend Carl Icahn. Cohen’s activism with this company, along with campaigns with several other high-profile companies, clearly puts him on track to be the activist investing “icon” of his generation.

However, besides the irony of his activist investing idol holding a short position in GME stock, there’s another interesting aspect to the whole “Cohen as Icahn” angle. Back in 2005, Carl Icahn mounted an activist investing campaign at Blockbuster, which at the time was a profitable, albeit declining enterprise.

Icahn took control of Blockbuster’s board in a proxy fight, and pushed for actions that would maximize profitability in the near-term, yet resulted in the company essentially letting Netflix (NASDAQ:NFLX) dominate the DVDs-by-mail business. As a result, Blockbuster filed for bankruptcy in 2010, and Netflix of course went on to become a streaming powerhouse.

Much like Blockbuster, GameStop may be threatening its future by de-emphasizing its digital transformation. With his e-commerce background, Cohen is less likely to make the same mistake with GME as Icahn did with Blockbuster, but he needs to make a big move, fast.

Bottom Line

As physical console games become an increasingly niche product, GameStop is in a similar battle against time as Blockbuster was in the 2000s. At present, this company is able to generate positive earnings from the sale of physical game consoles and from novelty merchandise, yet this may not be sustainable.

Again, under Cohen’s control, GME has the potential to prevent GameStop from experiencing a Blockbuster-esque fate. The company could put some of its aforementioned cash position to good use, through acquisitions rather than through risky organic growth initiatives.

With its still-inflated valuation, GameStock could even make a cash and stock bid for a more profitable company in a similar industry. This at the very least could help minimize further losses for shares.

For now, though, GME stock is veering towards an ultimate “game over” moment. Until management makes a big move to secure its future, stay away.

On the date of publication, Thomas Niel did not hold (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.