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Is GameStop Stock a Good Buy For Investors In 2022?

One of the most traded stocks in the last year, GameStop [GME], has taken investors on a roller-coaster ride. Shares of GameStop were trading at less than $3 in April 2020 and soared to a record high of $325 in January 2021. GME stock is currently trading at $106.57, valuing the company at a market cap of $8.13 billion.

 

This article was originally written by MyWallSt. Read more insights from the MyWallSt team here. 

 

GameStop was a favorite among retail traders on Reddit who successfully orchestrated several short-squeezes since the start of 2021. But let’s take a look to see if investing in GME stock is a fundamentally sound decision right now.

The bull case for GameStop stock

GameStop sales fell from $9.2 billion in fiscal 2018 to $5.08 billion in fiscal 2021, ended in January. However, in the last 12-months, the company has increased sales to $5.87 billion, while Wall Street expects the top-line to increase by 17.3% to $5.97 billion in fiscal 2022.

In Q3 of fiscal 2022, GameStop sales were up a healthy 30% year over year at $1.29 billion.

In addition to improving sales, GameStop recently disclosed it’s entering the NFT or non-fungible token segment. NFTs are digital ownership certificates for intellectual properties such as videos, art, and even gaming products. According to a report from Bloomberg, the NFT market grew to $41 billion in 2021, while OpenSea, which is a leading player in this space, is valued at $13 billion.

Similar to OpenSea, GameStop will also operate an NFT marketplace, and entry into this high-growth vertical may be a key driver of revenue growth for the company going forward.

The bear case for GameStop stock

GameStop is a video-game retailer that has been wrestling with negative profit margins and slowing sales. In the last three quarters, the company reported a net loss of $234 million, compared to a loss of $296 million in the year-ago period. Its operating cash flow also stands at a negative $324 million in fiscal 2022.

Like most other retailers, GameStop was negatively impacted amid COVID-19 due to economic shutdowns. However, even before the pandemic, GameStop struggled to expand sales due to the worldwide shift towards digital gaming solutions. Further, GME’s sales are forecast to fall by 1.2% to $5.9 billion in fiscal 2023.

In addition to its less-than-impressive financial metrics, the astonishing run of GME stock in the past year has made it expensive, given it was trading at less than $20 at the end of 2020.

So, should I buy GameStop stock?

Despite the recent uptick in sales, GameStop stock remains a high-risk bet. Launching an NFT marketplace might seem ground-breaking, but it might also be a virtual craze that fizzles out quickly.

GME stock will have to increase its high-margin e-commerce sales in the upcoming quarters and turn profitable to gain investor confidence. Analysts tracking GME stock also expect it to fall by over 30% in the next 12-months.

Frequently asked questions

Why is everyone buying GameStop stock?

GameStop has gained popularity as a meme stock in the past year.

Is GameStop stock profitable?

No, GameStop reported an operating loss in the last three quarters.

What is the market cap of GameStop?

GME stock is valued at a market cap of $8.13 billion.

 

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Disclaimer Past performance is not a reliable indicator of future results.

CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.

The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.

CMC Markets does not endorse or offer opinion on the trading strategies used by the author. Their trading strategies do not guarantee any return and CMC Markets shall not be held responsible for any loss that you may incur, either directly or indirectly, arising from any investment based on any information contained herein.

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