Following the crazy quarter that GameStop (NYSE: GME) just had, many fresh-faced investors appear to be shocked at the pretty poor results on display at the company’s Q4 earnings call.
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Perhaps this misunderstanding presents a valuable lesson for investors?
What’s up with GameStop?
COVID-19 hasn’t been kind to GameStop: stores closed, staff were laid off, sales declined. With that came an adjusted net loss of $138.8 million for fiscal year 2020, down from an adjusted profit of $19.1 million the prior year, while net sales declined 21% to $5.09 billion.
There was a glimmer of hope in the company’s pivot to online sales, which increased 175% and represented 34% of net sales in the fiscal 2020 fourth quarter versus 12% of net sales in the fiscal 2019 fourth quarter.
However, let’s not kid ourselves anymore, this is a company in decline — even if its share price is up almost 600% year-to-date.
The short-squeeze that occurred in January was one of those once-in-a-blue-moon events, and is unlikely to happen again by the looks of things: Short interest in GameStop Corp as a percentage of the company’s float has declined to an estimated 15% as of Wednesday, versus a peak of 141% the first week of 2021.
In short (forgive the pun): there are no shorts to squeeze anymore.
So, the company’s price will now start to rise and fall on its fundamentals, which are not strong.
- Sales are declining.
- Debt is growing.
- It has not adapted quickly enough to changing market trends (i.e. e-commerce).
- It is not exactly boasting an all-star leadership team.
We are seeing the beginning of the end of the mania around GameStop, and if investors want to learn the right way to invest, then they should consider the 6 Golden Rules.
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