Are Gamestop shares a buy after earnings?

This year’s meme stock frenzy could play a crucial role in boosting its profile

· 2 min read
GameStop
GameStop

Gamestop Corp (NYSE:GME) is one of the most popular meme stocks in the market. The company’s shares popped more than 2,500% earlier in the year but have since eased to net a year-to-date gain of about 1,230%.

Gamestop started the year positively amid the meme stock frenzy. However, the company has since reported positive quarterly results that indicate there is more to it than just social media hype. The company announced its most recent quarterly results on Wednesday last week, which beat analyst expectations.

This provides a fundamentally backed upside potential for the stock.

Highlights from fiscal first-quarter results

In the company’s most recent quarterly results, Gamestop reported revenue growth of 25% to $1.277 billion, up from $1.021 billion reported the same period a year ago. Adjusted operating loss for the period was $21 million, a significant improvement from an equivalent loss of $98.8 million reported in fiscal Q1, 2020.

Gamestop’s adjusted net loss also edged lower to $29.4 million or ($0.45) per shares compared to an adjusted net loss of $157 million or ($2.44) per share reported in the same period last year.

Cash and cash equivalents for the period soared to $770.8 million, up from $583.9 million in the prior year. The company raised $551.7 million after issuing 3.5 million shares of common stock through its “at-the-market” equity program.

Gamestop also announced former Amazon.com Inc. (NASDAQ:AMZN) executives Matt Furlong and Mike Recupero as CEO and CFO, respectively. The two will play a crucial role in the company’s transition to online retail amid fading interest in traditional video game retail stores.

Outlook

Gamestop struggled to perform after peaking in 2016. However, this year’s meme stock frenzy could play a crucial role in boosting its profile. The company is in a transition amid diminishing interest in physical retail store purchases. It has brought in new talent from Amazon to steer it to the next frontier of video game shopping.

Gamestop’s popularity has surged online because of the social media hype through Reddit’s WallStreetBets forum. While Wall Street maintained a keen interest in the stock’s performance amid the meme stock frenzy, gamers too may have taken an interest.

The company’s top line could benefit from the hype, with more video game shoppers developing interest in its online shop. This could lead to more sales via its online platform.

Gamestop said it would be using net sales to measure performance for the foreseeable future. It said sales grew by 27% year-over-year in May. It seems to be tracking for another mid-twenties growth rate for the next quarter. But top-line growth could soar even higher once its online platform begins to realize its full potential.

The bottom line

In summary, Gamestop share price has bounced back in recent trading sessions following the announcement of its 2021 first-quarter results. Revenue and earnings beat expectations, and the company also brought in new talent to take it to the next frontier.

Although most of Gamestop’s recent gains came as results of the meme stock craze, the company seems to be on the right path in this transitory period. The valuation is steep, but investors can look at it as a growth stock.


Not Investment Advice
Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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