GameStop Stock Selloff Explained - Buy Chance or Value Trap?
Video game retailer GameStop Corp. GME shares had unpredictable price swings in 2021 due to a short squeeze, followed by a steady decline. GameStop's shares recently plunged due to lower quarterly revenues and investor dissatisfaction with the company's new capital raise policy. Despite this, the company cut costs and improved profitability. Does GME stock present a good buying opportunity or is it a value trap?
Why GameStop Shares Are Falling?
GameStop's latest fundraising initiative led to a drop of over 20% in its share price on Thursday. The video game retailer was planning to raise $1.75 billion in debt financing from investors, its second such move in recent times.
GameStop raised funds for general corporate needs, with investments linked to their Investment Policy. The funds were likely used to buy Bitcoins (BTC), which is consistent with GameStop's policy update in March.
GameStop recently raised funds to purchase 4,710 Bitcoin, valued at more than $500 million. This shift from selling video games to investing in Bitcoin was aimed at enhancing the company's value and increasing liquidity to meet financial needs.
However, GameStop's recent decision to acquire more Bitcoin was not well-received by investors. This is because Bitcoin is a volatile asset; it performs exceptionally well when it continues to rise, but when it drops, it can pose significant risks.
Is the Decline in GameStop Shares a Buy Opportunity?
GameStop is emulating Strategy Incorporated MSTR, previously known as MicroStrategy, which has acquired nearly 530,000 Bitcoins worth more than $45 billion since 2020. Strategy's shares surged over 2,500% in the last five years, benefiting from Bitcoin's bullish trend, particularly post the November Presidential election.
GameStop's investment in Bitcoin could be beneficial, but its impact on revenue growth remains uncertain. In the first quarter of 2025, GameStop's revenues decreased by 17% compared to the previous year. According to the latest SEC filing, GameStop's sales fell by 28% to $3.8 billion in 2024 from $5.3 billion in 2023. The company's revenues decreased due to shifting customer interest from physical to digital video games.
GameStop, though once a meme stock craze of the early 2020s, now lacks revenue growth while facing business challenges. Without new revenue-boosting strategies in place, it's sensible to avoid high-risk investments in GameStop, even though shares are trading at a discount.
Is GameStop a Value Trap Right Now?
Generally, a value trap occurs when a cheaply priced stock has problems like falling earnings and weak management, but this doesn't apply to GameStop.
GameStop faced more troubles during the pandemic as people stayed at home and avoided stores. However, GameStop's management made strategic moves to cut costs and increase profitability by closing stores in various countries like Switzerland, Austria, Ireland, Italy, and the United States. They are now planning to do the same in Canada and France this year.
GameStop posted almost $45 million in profits in the first quarter of 2025, a substantial year-over-year improvement, and has a 29.7% debt-to-equity ratio, lower than the Gaming industry's average of 186.4%, indicating financial stability. This reliance on shareholders' equity over borrowed capital could keep stakeholders interested for potential gains.
Image Source: Zacks Investment Research
For now, GameStop has a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
7 Best Stocks for the Next 30 Days
Just released: Experts distill 7 elite stocks from the current list of 220 Zacks Rank #1 Strong Buys. They deem these tickers "Most Likely for Early Price Pops."
Since 1988, the full list has beaten the market more than 2X over with an average gain of +23.5% per year. So be sure to give these hand picked 7 your immediate attention.
See them now >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
GameStop Corp. (GME): Free Stock Analysis Report
MicroStrategy Incorporated (MSTR): Free Stock Analysis Report
This article originally published on Zacks Investment Research (zacks.com).
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Globe and Mail
2 hours ago
- Globe and Mail
Should You Buy Nvidia Before June 25? Here's What History Says (and It May Surprise You).
Nvidia (NASDAQ: NVDA) has been one of the stock market's biggest movers and shakers in recent times. This is because the company plays a key role in a technology that has garnered everyone's attention: artificial intelligence (AI). Nvidia's chips power the training of models that set AI into action, and AI could change the world in much the same way the internet did several years ago. That's why investors have piled into Nvidia stock and have closely tuned in to anything the company's chief executive officer Jensen Huang has said. These comments offer us some visibility on what's ahead for the company -- and even the entire industry. So, it's not surprising that, often, after an Nvidia event, the stock will react. Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » As we look at the calendar, it tells us that one such event is right around the corner. On June 25, Nvidia holds its annual meeting of stockholders. Should you buy the stock before then? History has something to say -- and it may surprise you. Nvidia's big moment Before we get started, let's talk about Nvidia's most recent big moment, and that was the company's first-quarter earnings report on May 28. Nvidia wowed investors once again, as revenue soared 69% to more than $44 billion, surpassing analysts' estimates -- and importantly, the company spoke of ongoing strong demand for its new Blackwell architecture. The platform was designed specifically with inferencing in mind, a smart move considering that is the area of focus for many AI customers. Inferencing is the "thinking" process that results in AI coming up with answers to complex questions, and this requires significant power. "We're off to the races," Huang said during the earnings call, signaling much more growth lies ahead. Nvidia stock climbed in the post-earnings trading session, and though it fluctuated on certain trading days, it delivered a gain of about 6% in the two weeks following the report. Now, let's consider the upcoming shareholders' meeting. The company recently released the agenda, which includes items of business such as the election of directors nominated by the board of directors, advisory approval of executive compensation, and several other matters. These don't stand out as elements that will push the stock higher or lower, though any comments from Huang about the company's prospects could act as a catalyst. A look back in time What does history show us about Nvidia's stock performance after a shareholders' meeting? As the chart shows, the stock fell in the days following last year's meeting, then went on to rebound in the weeks to follow. NVDA data by YCharts Nvidia followed a similar pattern in 2023. And in 2022, the stock also fell following the meeting, but didn't go on to recover so quickly -- in fact, Nvidia delivered a double-digit loss from that point through the end of the year. So it might seem surprising that, in spite of Nvidia's earnings and general message being positive over the past few years, the stock actually fell after each shareholder meeting. It's important to keep in mind, though, that this likely isn't a result of anything said or decided at the annual event. At this point in Nvidia's growth story, investors react to new or extremely strong messages from Huang -- but they may not reward the stock with gains after a "routine" sort of event such as a shareholder meeting. Now let's get back to our question: Should you buy Nvidia before June 25? History tells us there's no need to rush into the stock on anticipation of phenomenal gains following the shareholder meeting. But this doesn't mean Nvidia isn't a buy. The company has built a market-leading position and should maintain this thanks to its commitment to innovation. That makes Nvidia stock a fantastic addition to any AI portfolio, but you don't have to rush into it -- whether you buy Nvidia now or after the meeting, you have a great chance of winning over the long haul. Should you invest $1,000 in Nvidia right now? Before you buy stock in Nvidia, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Nvidia wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $653,702!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $870,207!* Now, it's worth noting Stock Advisor 's total average return is988% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 9, 2025
Globe and Mail
2 hours ago
- Globe and Mail
Why Netflix Should Replace Tesla in the "Magnificent Seven"
Looking back over the past decade and beyond, I don't think there are many folks out there who would deny just how impressive Tesla 's success has been. This innovative business, led by polarizing CEO Elon Musk, disrupted the global auto industry with its electric vehicles (EVs). While the EV stock trades 32% below its peak (as of June 10), that's still a gain of 1,810% in the past 10 years. That long-term performance made it one of the world's largest tech companies, which is why Bank of America analyst Michael Hartnett gave it a spot in the " Magnificent Seven" when he introduced the idea of the group in 2023. However, I think it's time to swap the EV maker out of this unofficial grouping and replace it with the more-deserving Netflix (NASDAQ: NFLX). Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue » Tesla's struggles are hard to ignore Over the years, Tesla shareholders grew used to seeing the company register jaw-dropping sales growth. The picture isn't so rosy anymore, though. Its automotive revenue declined 20% year over year in Q1. In 2024, it reported its first-ever year-over-year drop in deliveries. And the company's profitability has continued to slide as higher interest rates and a more competitive environment have put downward pressure on demand for its vehicles. Musk's push in the political arena might at first have been viewed positively by some investors, as he was positioning himself to have more influence in Washington, D.C., which could have benefited Tesla from a regulatory perspective. But both his time in President Donald Trump's inner circle and his more recent exit from politics, as well as his highly public spat with Trump, have been huge distractions that have certainly damaged Tesla's brand instead. It's safe to say that a company that was once in the fast lane is now stuck in traffic. Tesla will have a lot of work to do in order to get back to its prior glory. Netflix just keeps winning While Tesla faces a battle to get itself back on track, Netflix continues to flourish. The streaming stock is up 1,200% in the last decade. The company added 41 million net new customers in 2024, bringing its total to nearly 302 million at year's end. While Netflix chose to stop publicly reporting the number of subscribers it has starting this year, it did increase revenue by 12.5% year over year in the first quarter. It might seem like this streaming platform has saturated its market. However, co-CEO Greg Peters believes there are still "hundreds of millions of folks to sign up." By continuing to focus on creating compelling content offerings all over the world, Netflix is in a position to keep its expansion going. Wall Street's consensus analyst estimates are for its revenue to rise at a compound annual rate of 12.3% between 2024 and 2027. The streaming industry, like the automotive market, is extremely competitive. Netflix co-founder and former CEO Reed Hastings previously said that he counts sleep among the company's key competitors. I don't believe this was a stretch. Netflix goes up against all the other activities consumers can do when it's time to wind down and relax. But to be more specific, people have an almost unlimited number of viewing options at their fingertips today. Netflix is in the lead, though. Data from Nielsen shows that Netflix commanded 7.5% of video viewing time in the U.S. in April, only behind YouTube, which isn't necessarily an apples-to-apples comparison due to the latter largely featuring user-generated content. With its massive subscriber base, and trailing 12-month revenue of $40 billion, Netflix has the financial strength to spend a lot on content and marketing. And it's still able to bring in billions in free cash flow each year. It's important to highlight that the "Magnificent Seven" is not an official index like the S&P 500 is. However, with each passing quarter, Netflix continues to make the case that it deserves to be mentioned with the tech giants in that group. Given the streaming pioneer's ongoing success, it belongs in that exclusive club instead of Tesla. Should you invest $1,000 in Netflix right now? Before you buy stock in Netflix, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Netflix wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $653,702!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $870,207!* Now, it's worth noting Stock Advisor 's total average return is988% — a market-crushing outperformance compared to172%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of June 9, 2025
CBC
2 hours ago
- CBC
Protestors march through downtown Toronto to call out corporate landlords
A group of Toronto advocates marched alongside a giant fake cockroach during a protest Saturday as they called on the city to provide more affordable housing and spoke out against corporate landlord practices. Several people held large cockroach props with speech bubbles containing the names of some major corporate landlords in the city as they marched toward those companies' offices in the Financial District. Corporate landlords "have been jacking up our rents, but also not maintaining our units," said Bruno Dobrusin, a member of the York South-Weston Tenant Union, one of the organizers of the protest. "That's why we brought the cockroaches, because [it shows] what we have to live with." The demonstration began at 214-230 Sherbourne St., a vacant lot at the intersection with Dundas St. E. that advocates have long called on the city to turn the lot into affordable housing. In 2022, KingSett Capital, a private equity real estate investment firm, purchased the lot with the intention of building a 46-storey condo building there. The city had worked on a bid to buy 214-230 Sherbourne Street at the time but was unsuccessful, said James Wattie, a spokesperson for CreateTO, a city-owned agency that looks to create opportunities based on the city's real estate portfolio. In spring 2023, the city negotiated with the corporation about buying back the stretch of land, but the proposal did not meet KingSett's asking price, said Toronto Centre Coun. Chris Moise in a statement last July. City council has since directed staff to continue discussions with KingSett "to find solutions that ensure an affordable housing component is included in the development," Wattie said in an email Saturday. These solutions "could include acquiring the site, should funding become available and subject to council approval," he said. KingSett Capital's Toronto office is one of the locations where protestors marched to Saturday, with others including Dream Unlimited and Canadian Apartment Properties REIT. CBC Toronto has reached out to the companies for comment and will update this story if we receive a response. Sherbourne and Dundas 'epicentre' of housing crisis Poverty is "very visible" near Sherbourne and Dundas streets, said Gaetan Heroux, member of 230 Fightback, an advocacy group that's asking the city to buy back the lot and turn it into affordable housing. "It's important for us to have social housing on the lot … We're in the epicentre of the housing crisis," he said. Among those at the rally was Megan Kee, an organizer with the advocacy group No Demovictions. The term demovictions, also known as demolition-driven eviction, refers to when a landlord evicts tenants from a building so that it can be demolished and redeveloped into new apartments or condos. Kee said she lives near Yonge and Eglinton in an affordable housing building with 121 units that is being torn down to build condos. WATCH | How modular housing could help solve Ontario's housing crisis: How modular housing could help solve Ontario's housing crisis 3 months ago Duration 2:36 Ontario's housing crisis has been an ongoing issue for years, and some experts say modular housing could play a crucial role in addressing the problem. The prefabricated buildings are built in factories and assembled on-site. CBC's Ali Chiasson has more. "A lot of people in my situation don't have the financial ability to go anywhere else," she said. "We're sort of stuck." Kee said she believes corporate landlords are primarily driven by profit, not doing what's best for their tenants. "When a business is in charge of fundamental human rights, profit is always going to be the number one priority," she said. "It's not going to be human wellbeing, it's not going to be quality of life."
