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GameStop Stock: Outperforming the Tech Giants in 2022

Despite unfavorable macroeconomics, GameStop has managed to outperform tech giant companies this year. Here's what investors need to know.
  • GameStop's stock has fallen only 30% in 2022, while the tech-heavy Nasdaq has lost more than 33%.
  • Because GameStop hasn't always followed the direction of the broader market in recent years, it has served as a hedge.
  • The so-called "smart money" has become increasingly skeptical of the value investing model and has started paying attention to meme stocks like GME.
Figure 1: GameStop Stock: Outperforming the Tech Giants in 2022

Figure 1: GameStop Stock: Outperforming the Tech Giants in 2022

Read more from Wall Street Memes: SIRI, LCID, and GME: 3 Stocks With Short Squeeze Potential for November

How Has GME Outperformed the Tech Sector?

Despite an unfavorable macroeconomic backdrop, GameStop's  (GME) - Get Free Report stock has been faring better than many tech stocks. GME's year-to-date drop of "only" 30% has been more subtle than the 33% drop in the Invesco QQQ ETF, which is heavily weighted toward large-cap technology companies.

GameStop's performance compared to large-cap tech companies is due in part to the fact that GameStop trades on the sentiment of its shareholders, rather than exclusively on the fundamentals of its business.

Figure 2: GME vs. QQQ performance this year until November 2nd.

Figure 2: GME vs. QQQ performance this year until November 2nd.

Excluding Big Tech names like Apple  (AAPL) - Get Free Report and Twitter  (TWTR) - Get Free Report, whose performances have outperformed GameStop so far this year, the vast majority of other tech companies have lost far more than the video game retailer.

See the tweet below from the founder and CEO of Compound Capital Advisors, listing the returns of several large-cap and GME stocks this year on November 2:

Is GameStop a Market Hedge?

It shouldn't come as much of a surprise that GME has held up better against the dreary market. Over the past five years, the stock has had a negative beta. Specifically, GME has reported a beta of -0.29 in the most recent five-year period.

A negative beta is relatively rare among "traditional" stocks. It implies that an asset trades at a negative correlation to the broader market.

However, it's worth noting that the reason why GameStop's beta has been negative is because the stock shot up by more than 2,500% in early 2021.

For most of this year, GME has traded at a positive beta. GME's beta with the S&P 500 has averaged out to 2.0 year to date. That means, on average, GME is trading with, not against, market trends.

At a couple of points during January and July, however, GME went on a negative beta tear, dramatically bucking the market's movement (see chart below).

Figure 3: GME's beta.

Figure 3: GME's beta.

What the "Smart Money" Keeps Missing About GME

A few weeks ago, famed hedge fund manager David Einhorn drew attention when he declared that value investing may never come back. According to Einhord, given the way stocks have been performing this year, the market has adopted alternatives for calculating equity value.

According to Bloomberg data, in recent years, most industry groups have seen bankruptcy filings decline from mid-2020 pandemic highs. Thus, companies considered "zombies" remain alive with interest rates still at fairly low levels.

This has an impact on investors who remain comfortable betting on growth, especially after the Fed's financial policies have made the market less analytical.

It's clear that markets are evolving, and investors need to look for other types of strategies — not only on the short side but also on the long side, based on current market structures.

Arguably, the so-called "smart money" — which includes institutional investors, central banks, funds, and other financial professionals — invests in stocks based on the fundamentals of a company.

The “smart money” shouldn't underestimate the ability of retail investors to support a stock like GME for a long period at rather high valuation levels.

Looking only at a company's fundamentals — without taking into consideration the impact of events such as "meme mania" — gives an incomplete story in the current market environment.

As many short-selling hedge funds continue to bet massively against GameStop, they continue to ignore the fact that GME is one of the most popular stocks on the internet. Its potential target for mobilized investing is the trump card that has been allowed GME to outperform tech giants this year.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting the Wall Street Memes)