The story of GameStop (NYSE:GME) stock illustrates that the difference between success and failure in investing lies in selling.
Those who succeed know how to sell. They know when to sell. Then, when the timing is right, they sell.
GameStop became a meme stock in January 2021, over two years ago. Small traders, encouraged by subreddit r/WallStreetBets, bought the shares to create a short squeeze. It worked. The stock traded as high as $120 per share that month. Those who sold then made money.
This story is about those who held on, who did not make money. They now have shares worth less than $20 each. And there’s no reason why they should rise much from here.
The GME Stock Fundamentals
Trading is about psychology. Investing is about fundamentals.
GameStop is little changed from before all this started. It’s a chain of video game stores along with associated merchandise.
The only difference is that it has since been able to sell enough stock to cover up its faults.
GameStop sales were $500 million lower in 2022 than in 2020. The company lost money in all three years. There was a small profit of $48.2 million in last year’s fourth quarter. The portrait painted by its full-year results, however, is of a slowly failing retailer painting over the cracks with cost cuts. Think Bed Bath & Beyond (NASDAQ:BBBY) circa 2019.
Analysts and experienced investors know this. GameStop stock is down 55% over the last two years, 38% over the last year. Things would be worse except for a speculative run-up following those fourth-quarter results in March.
GameStop has a market cap of about $5.9 billion, roughly equal to its annual sales. That is very high for a retailer. Walmart (NYSE:WMT) sells for about two-thirds of its sales. Kroger (NYSE:KR) sells for one-fourth of its sales.
Where Are GameStop Fans Now?
The early 2021 frenzy is so legendary it’s being turned into a movie. The film is called Dumb Money.
Reddit, where all this started, tried to clean up its act, allegedly banning r/WallStreetBets moderator Jaime Rogozinski and taking back the trademark. This led to a lawsuit. The subreddit itself is now a shadow of what it once was.
Ryan Cohen, who led the charge and became GameStop’s chairman, is still playing the game. He made a run at Nordstrom (NYSE:JWN), then backed away. He made money on Bed Bath & Beyond in the months before its bankruptcy. He joined other insiders in buying shares to pump up GameStop.
The only bullish thing I can say is that the movement to “cloud gaming,” of games played entirely online and stores like GameStop disappearing, isn’t working out either. There’s still a need for stores.
But is it enough for you to make money? InvestorPlace analyst Louis Navellier doesn’t think so. Insider buying, and short selling possibilities aren’t compelling reasons to buy the stock, he writes. “The bottom line should be the bottom line.”
The Bottom Line
It’s hard to sell out of a losing position and admit you were wrong. I still have some Alibaba (NYSE:BABA) shares rolling around in my retirement account.
Let me offer you a deal. If you sell out of GameStop and take your losses, I’ll sell my Alibaba.
In the end, the fundamentals are what they are. The meme stock craze saved GameStop as a going concern. But that going concern hasn’t earned your investment.
On the date of publication, Dana Blankenhorn held a long position in BABA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.