What a great day it has been for GameStop stock (GME) - Get GameStop Corporation Report and its investors. By late afternoon on Tuesday, shares of the popular game retailer had climbed more than 30% in a single session.
Could this be the beginning of another melt-your-face rally? Will traders and investors revisit the golden days of 2021, when GME skyrocketed to mind blowing peaks of over $300 per share?
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GME: smells like meme mania
Whether or not GameStop investors even appreciate the term “meme mania”, today’s price action suggests that this is exactly what has been happening in the past few days.
The March 22 spike only begins to tell the story. Since the March 14 year-to-date bottom of $78 per share, GME stock climbed an astounding 55%-plus in only six trading sessions.
The last time that a strong rally in such a short period took place was in June of last year, during the most recent “meme attack”. GME shares nearly doubled to over $300 in four weeks.
Fundamentally, little more than a mixed-bag earnings report delivered last week justifies the March 2022 bullishness. It certainly “smells” like another meme-style move higher, which could still be great news for GME investors.
Do the fundamentals look good?
As I explained last week, GameStop’s performance has not been the most stellar.
To be fair, the retailer delivered fiscal Q4 revenue growth of 6% that, while modest, topped expectations by two percentage points. The small collectibles business seems to be doing great, and software has managed to stay afloat.
However, hardware continues to be a disappointment, with growth rates of only 2% last quarter looking dismal. This is particularly disappointing given the early innings of a video game console cycle that had been anticipated for many months, if not years.
Part of the problem seems to be the disruptive supply chain challenges that have been a drag on hardware sales and margins. They are unlikely to resolve in the immediate future.
Apes are taking over
As suggested in the title of my recent earnings review, and given the lack of outstanding financial performance, I believed that it was “up to the apes” to support GME share price through enthusiasm and optimism. And this is what seems to be happening. My quote:
“Maybe none of it [i.e., business fundamentals] will matter if enough demand for the stock continues to exist, driven by unshaken HODLer optimism that the path that takes GME stock ‘to the moon’ has yet to be carved out.”
According to Ape Wisdom, GME is (by a long stretch) the most popular ticker on Reddit today: 10 times as many mentions as peer AMC stock (AMC) and nearly 70 times as many upvotes.
Momentum alone, driven by online forum discussions, could be the main force behind the recent rally in GME. The melt up may even accelerate, if FOMO (fear of missing out) leads other traders to pile in and bid up the price of GameStop stock.
The scenario looks even more promising when elevated short interest of 25% is taken into account. The figure, provided by Yahoo Finance and reflective of end-of-February positions, may have even reached higher ahead of GameStop’s earnings day.
In addition, Seeking Alpha has reported on the potential of a gamma squeeze. This could be the result of increased demand for out-of-the-money calls on GameStop stock.
Yes, GME could be heading to the moon again. Keep in mind, however, that anything can happen in the “meme world”, including a sharp correction — something that took place even after the impressive 2021 rallies.
So, a word of caution is never unwarranted: traders and investors should also take into consideration not only the potential rewards, but also the risks that they face when buying shares here.
(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 Wall Street Memes)