GameStop GME Stock Latest Update 2021 >> While short selling is very risky, the majority of individuals engage in it without fully understanding the dangers.
This comes to mind when considering GameStop, a video game retailer whose stock rose 27% on August 24 as a result of “no significant news developments,” according to Barron’s.
Since January, the stock of GameStop has increased 425 percent to about $210.
While this is a significant gain, it is still behind the 52-week high of $480. Meanwhile, CNBC reports that short interest in the company has decreased to 10%, which is still more than the industry average of 5%.
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Should you purchase GameStock immediately? You should if you like the sense of belonging to a Reddit community that revels in fighting short sellers.
I would not purchase GameStop stock if I were investing for the long term. This is because its development potential as a distributor of games and associated equipment is limited, which does not justify its high price.
Nonetheless, GameStop has significantly reduced its debt and improved its financial position by capitalising on the meme stock craze. As a result, it seems to be in less danger than at the start of the year.
Meme and GME Stock
Individuals who gather on social media platforms are drawn to meme stocks.
These traders target hedge funds that swarm into short positions against certain firms by amassing large long positions in the assets – a situation that is often worsened by the purchase of call options that appreciate in value as the stock price increases.
Market makers must hedge their holdings when traders purchase call options by purchasing shares of the underlying business. Additionally, since their brokers need prompt repayment of stock loans, rising pressure pushes short sellers to act quickly to acquire shares at better prices.
According to Vox, short squeezes result in victory for redditors on WallStreetBets and anxiety of losing out on opportunities for those on the sidelines. To alleviate FOMO, the event attracts a larger crowd.
Meme stocks are notoriously volatile — I’m sure anyone who purchased GameStop at $480 was disappointed — which would be concerning if it weren’t for redditors’ pride in documenting how much their positions have fallen and sharing emojis like “to the moon” and “diamond hands” to demonstrate their commitment to their
Simply stated, individuals invest impulsively, and the social media environment around meme stocks provides them with dopamine to compensate for the financial disaster they may encounter on their fantastical lunar trip.
Why did investors chase the value of GME Stock by 27%?
The financial press is puzzled as to why GameStop stock has increased in value by 27 percent since August 23.
According to Barron’s, “there were no significant news events that sparked movement. For months, nonfundamental variables such as short seller activity, option volume, social media attention, and momentum trading have impacted the share prices of GameStop and AMC. ”
Nothing has been filed with the Securities and Exchange Commission that might account for the rise in GameStop shares.According to MarketWatch, “there are no new press releases on the company’s website andbusiness has not filed with the Securities and Exchange Commission in more than a month.
A stock that increases 27% in response to no important news is not a smart investment since it might equally fall 27% in response to no significant news.
How quickly is GameStop expanding?
This year, GameStop’s top-line growth has accelerated.
As predicted in January, GameStop’s stock will plummet in the third quarter of 2020. Net sales were $1 billion, a drop of 30.2 percent over the previous year. GameStop lost $18.8 million in the quarter and burned through $200 million in free cash flow, leaving the company with a balance sheet of $450 million in cash.
GameStop cancelled their fourth-quarter forecast but boasted about a 352 percent growth in e-commerce sales — however, revenues were not disclosed separately, indicating that the numbers are insignificant. Meanwhile, GameStop has shuttered 1,020 locations since the end of 2018.
GameStop intended to expand by the first quarter of 2021. According to GameStop’s earnings conference transcript for the first quarter of 2021, the company’s first-quarter revenues increased by 25.1% to $1.3 billion, and the company “began the period with $771 million in total cash on the balance sheet, a more than $185 million increase over the prior year.
What Is the Financial Foundation of GameStop(GME)?
The financial situation of GameStop is improving. In the first quarter of 2021, its total debt decreased from $1.2 billion to $710 million, while its cash position rose from $450 million to $690 million. GameStop raised $550 million in April via a stock sale.
Meanwhile, the cash burn rate of the business has decreased. The business’s negative free cash flow has decreased from -$200 million to -$30 million. GameStop had positive free cash flow of $90 million in the fiscal year ended March 2021.
Is GameStop on an unbroken rising trajectory?
GameStop has made no financial forecasts for 2021.
According to YahooFinance, four analysts who follow GameStop expect second-quarter revenues of $1.1 billion, up 17% from the second quarter of 2020.
This is a $200 million drop in sales from the previous quarter and a slowdown of the quarter’s 25% growth rate.
Analysts at YahooFinance anticipate a 95% increase in 2022, followed by a 48% yearly decline over the following five years.
The crux of the investor’s dilemma is that it’s impossible to forecast how meme stocks will perform. According to Barron’s, meme stocks “cooled down in July and August after a spike in May and June,” and they may revert to their previous levels at any time.