Trading GameStop stock is like gambling, warns trader with more than 40 years of experience
06/26/2024 03:52
GameStop is just not a sound investment or trade, experts tell Yahoo Finance.
Now that the latest frenzy in GameStop (GME) has quieted down a touch from the hysteria seen earlier in June, pros say it's time for traders to conduct a reality check on the champion meme stock name — or else risk being left holding the bag, again.
"It's irresponsible for the newcomer into the market to think that this [GameStop trading activity] is anything else except gambling," veteran NYSE floor trader Peter Tuchman said on Yahoo Finance’s Opening Bid podcast (see video above or listen here).
"So many young traders who come to me ... are still long GameStop at $480 from the first [meme stock] debacle, and now they're going back to the well again to get themselves in trouble," Tuchman added.
Tuchman knows a thing or two about spotting trouble in the eyes of market risk-takers.
He boasts more than 40 years of trading experience, mostly for clients down on the once-buzzing floor, and has become iconic for images of him doing his job each day. His wild white locks, black-rimmed eyeglasses, and savvy ways have garnered him the nickname “Einstein of Wall Street."
His long career overlapped with many significant market events, including Black Monday, 9/11, and the Great Recession. And, of course, he traded right on through the last meme stock frenzy of 2021, which sparked the introduction of Keith "Roaring Kitty" Gill to the investing scene.
To be sure, from a purely fundamental perspective, GameStop looks as speculative a bet as asking the dealer to hit you sitting on 20 at the Vegas blackjack table.
The company's first quarter sales cratered 29% year over year. The company lost a staggering $32.3 million in the quarter compared to a loss of $50.5 million a year earlier.
The two sell-side analysts that still cover GameStop anticipate the company will produce losses in at least its next two fiscal years, according to Yahoo Finance data.
Behind these woeful numbers is a company refusing to aggressively shrink a physical store base that numbers 4,169 locations worldwide — despite the entire retail industry speeding toward an all-digital future.
Profit margins are under pressure, and they have been for some time.
And GameStop is overly reliant on gaming consoles — 56.8% of sales came from hardware and accessories last year. But console sales face an increasingly grim outlook as PCs and smartphones compete for market share.
"GameStop stopped making sense from a business perspective a while ago," said retail expert and investor Jeff Macke on Opening Bid (watch here; listen below). "They're packed away in the mall where ... the newsstand used to be and the shoe polish guy," Macke added.
Add to that a reclusive CEO calling the shots, and you have the wild swings in GameStop's stock that Tuchman and Macke contend should be warning signs to rational investors.
GameStop stock went from a high of $66 when "activist investor" turned CEO Ryan Cohen joined the board in January 2021 to a low of $9.95 in mid-April before the latest bout of Keith Gill shenanigans on X, formerly known as Twitter, and YouTube.
Shares currently trade at $23, down 52% from the intraday high hit on June 6.
Cohen has used the renewed trader appetite to bolster GameStop's cash coffers, much to the delight of his many supporters on forums like X and Reddit.
The company received $2.1 billion recently after selling another 75 million new shares. Some three weeks earlier, it sold 45 million shares, netting $933 million.
"You can never lose sight of the fundamentals," Interactive Brokers chief strategist Steve Sosnick said on Opening Bid.
Somehow, we think Tuchman and Macke would agree.
GameStop is beginning to look more like a holding company than a games retailer, author and retail expert Jeff Macke said on the episode of Opening Bid below.
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