GME
GameStop GME held its delayed annual meeting for shareholders on Monday, June 17. The anticipation was palpable. Originally scheduled for June 13, the meeting had to be postponed because the livestream attracted so much attention it crashed the host’s servers. The rescheduled meeting, however, was a let down. CEO Ryan Cohen spoke briefly, espoused generalities and gave little hint at what the plan was for the video game retailer’s future. He took no shareholder questions and the virtual meeting concluded within 30 minutes.
Not even investors were impressed. The stock tumbled to close the day down 12%. The question remains, where is GameStop going?
Meme Stock Revival
GameStop stock has been on a steady downward slide since the meme stock heyday of 2021. It was only recently revived when Keith Gill, better known as Roaring Kitty on social media, returned to pump up his holdings in the stock again.
That caused GameStop stock to triple in value virtually overnight and also brought along a number of other dead or dying meme stocks with it.
It also allowed the video game retailer to raise nearly $1 billion through a stock sale. While that padded GameStop’s bank account, it is not doing much to turn around the business.
And that’s why investors were disappointed when Cohen failed to provide much direction or give an indication of where the retailer is heading.
“We’re Here to Work”
There was one takeaway from the meeting and that was GameStop is going to be getting smaller. Cohen correctly pointed out that without profits, whatever revenue the retailer makes is useless to shareholders.
To get there, GameStop is going to have to shrink. “This means a smaller network of stores with an expanded assortment of higher value items that fit into our trade-in model,” Cohen said. “… We are not here to make promises or hype things up. We’re here to work.”
To a certain extent, that is what investors want to hear from management. Ignore the noise and get down to business.
Unfortunately, what the business of GameStop is remains unclear. Sales are plummeting, operating losses are growing and the retailer has no problem diluting shareholders to make a cash grab.
Yet the trade-in model Cohen is pursuing seems like a cigar stub strategy as the video game industry increasingly moves to the digital and download model.
Sucking the Oxygen Out of the Room
Warren Buffett coined the term “cigar butt investing.” It is a strategy of buying beaten-down stocks that still have some value in them. You can still get a few puffs of profit out of them before they are all used up.
“A cigar butt found on the street that has only one puff left in it may not offer much of a smoke,” he wrote to shareholders, “but the ‘bargain purchase’ will make that puff all profit.”
While there may still some value in GameStop, it is getting difficult to see there being many puffs left.
Investors have little to go on but hope that Cohen can turn the company around. Which is why they would have liked getting some reassurance on what was in store.
Becoming a much smaller retailer, even if it becomes profitable, is not a growth strategy to buy into. A small fish in a small pond does not instill much confidence or enthusiasm.
GameStop hasn’t traded on its fundamentals in years. But holding on in hopes of the next Roaring Kitty post to revive shares is not investing. It is wishful thinking and gambling and is why GameStop stock should be avoided.
On the date of publication, Rich Duprey 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.
Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on Nasdaq.com, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.
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