It's not 2021, but GameStop Inc. (NYSE: GME) is giving its loyal band of traders a familiar feeling. Between February 22 and March 6, 2024, GME stock surged about 18%. The surge didn't last, and the stock is down about 10% since reaching a high of $15.81.
The question is, why? The company's Newsroom page on the company's website shows no news from the company since early December 2023. At that time, GameStop reported its earnings for the third quarter of 2023, and the news was mixed.
The company reported revenue of $1.08 billion, which was shy of the $1.18 billion analysts expected. However, the company reported a smaller loss than expected, with negative earnings per share of just one cent compared to the loss of eight cents a share that analysts expected.
GameStop's Business Model is Still Troubled
GameStop reports fourth quarter earnings on March 17, 2024. At that time, analysts forecast the company to report positive earnings per share of 27 cents on revenue of $2.07 billion. On the surface, that would appear to be bullish. However, revenue would be 7% lower than the prior year.
It's fair to note that earnings would be up by about 8% YOY. However, that would only be relevant if the company's business model were to back it up. At this point, that appears unlikely. GameStop's core legacy business continues to erode. The company is generating revenue from collectibles, but it remains to be seen if that's a viable model.
That leaves the opportunity that exists from the board's decision to allow chief executive officer (CEO) Ryan Cohen to buy stocks of other companies.
As Bitcoin Goes, So Goes GameStop?
Another reason GME stock may be catching a bid is Bitcoin (BTC). The cryptocurrency has been on fire as investors begin to take a risk-on posture, expecting lower interest rates and a stronger economy in the second half of the year.
Although GameStop didn't announce it on its site, the company has entered into a collaboration with Telos Blockchain. The objective seems to be the conversion of GameStop into a leader in the cloud-based gaming space, with blockchain allowing players to move assets across games in a frictionless fashion.
It's a bold move, and you won't see GME on a list of bitcoin stocks. But with Bitcoin reaching a new high, GME stock could be riding its coattails. But even if the company obtains a first-mover advantage, it remains to be seen how wide the moat would be.
A Trade Not an Investment
With so much uncertainty about the company's business model, GameStop remains a poor investment. However, as a speculative trade, GME stock could have some upside.
The stock is clearly off its December 2023 low. And GME has been trading in a defined range since January. This consolidation usually indicates that it's ready for a move one way or another.
The earnings report could provide more clarity. But without a blockbuster announcement, GME stock continues to look like a playground for traders hoping for a short squeeze. The short interest on GME stock is over 19%, and the short interest ratio means it would take over 10 days for short positions to be covered.
