Is it too late to buy GameStop (NYSE:GME) stock?

Video game company GameStop Corporation (NYSE:GME) saw its stocks rocket to the moon in the midst of a meme stock rally in January this year. Since then, however, its stock price has fallen just as abruptly as it had risen.

As retail investors took interest in the stock again near the end of May and early on in June, it has recorded some gains again.

The stock also appears to have gathered some attention on the back of a share offering where GameStop raised about US$ 1.13 billion, it announced on June 22.

With the company reportedly looking to expand its business on the online platform, is GameStop stock likely to revive? Let’s look closely at this meme stock’s performance to understand.

GameStop’s (NYSE:GME) meme rally

GameStop gained attention earlier this year as discussions around it grew on social media platforms like Reddit. As the chatroom war between Reddit forum-based day traders and short sellers gained momentum, the stock price of the videogame company began recording a frenzied rally. Even as other big names joined this meme stock rally, such as AMC Entertainment and BlackBerry Limited, GameStop remained the top star.

The short-lived rally saw many retail investors earn profits. But eventually, GME stock collapsed from its Reddit-fueled heights, as extreme volatility is a feature of meme stock rallies.

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Can GameStop rebound to its record highs again?

Some market commentators believe that the stock could pick up again outside a meme stock rally, based on the company’s new developments and fundamentals.

An important factor that seems to be fueling this confidence in GameStop’s turnaround is new chairperson Ryan Cohen.

The co-founder and ex-CEO of pet food enterprise Chewy Inc, Mr Cohen joined GameStop earlier this year. The announcement of the billionaire entrepreneur getting three seats on the video game firm’s board played a role in attracting investor interest ahead of the stock price explosion in January-end.

One of the arguments that many short sellers and analysts had against GameStop was that its brick-and-mortar gaming store chain is likely to have a bleak future in terms of growth. Now, under Mr Cohen’s eye, the company is reportedly getting a serious makeover in its e-commerce wing, although it is yet to reveal any strategies it plans to adopt to establish itself as the giant in the online gaming space.

Apart from Mr Cohen, the company has also onboarded Matt Furlong, a former Amazon Inc. (NASDAQ:AMZN) executive, who could also play an important role in GameStop’s expansion.

If GameStop succeeds in making a presence in the online gaming market, which has grown extensively in the wake of the pandemic, it could record a significant growth going forward. At the same time, its current business model as a video game retail chain could pick up pace again once the economy fully reopens.

It has also been taking steps to eliminate long-term debt liabilities using cash reserves, which stood at US$ 770.8 million as of May 1, 2021. It had cash reserves of US$ 583.9 million in the same period last year.

As per its filing with the exchanges, the company has no long-term debt on its balance sheet.

Let’s look at the stock’s current metrics now.

GameStop’s stock performance

GameStop closed at a price of US$ 213.25 on Monday, June 28, bringing its market capitalization to over US$ 15 billion and its outstanding shares to about 70.8 million. In the last 30 days, it recorded an average trading volume of over 9 million.

The NYSE-listed video game company operates in geographies including Europe, Canada, Australia, etc. Apart from its videogame sales, the company also has a technology brands business where it sells wireless products and services.

Its price-to-book ratio stood at 17.17, while its price-to-cash flow ratio, which measures the stock price in relation to the company's operating cash flow, was 90.40, as of June 28.

On the financial front, GameStop’s net sales in the first fiscal quarter of 2021 were 25 per cent higher year-over-year (YoY), touching US$ 1.277 billion. This increase came after a 12 per cent reduction in its international store base amid the COVID-19 pandemic.

Its net loss shrunk from US$ 165.7 million in Q1 2020 to US$ 66.8 million in Q1 2021. The operating loss also shrunk significantly to US$ 40.8 million in Q1 2021.

GameStop’s sales, general and administrative expenses were also lower by 4.2 per cent YoY, touching US$ 370.3 million, in Q1 2021.

The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.