Adam Spatacco, The Motley Fool
5 min read
In This Article:
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GameStop was one of the hottest stocks in the market prior to the artificial intelligence (AI) revolution.
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Over the last few years, the company's sales have continued to decline while profits remain modest.
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While GameStop's share price has retracted considerably, a new strategy put in place by management could ignite interest from investors once again.
For the last couple of years, investors have become enamored by the skyrocketing share prices of companies such as Nvidia and Palantir Technologies. Prior to the artificial intelligence (AI) revolution, however, these two companies were seldom covered in financial news circles.
It was just a few years ago that gaming retailer GameStop (NYSE: GME) was all anyone on Wall Street was talking about. But today, with shares down by 66% from all-time highs, GameStop appears to be a relic of the past -- forgotten about amid blossoming opportunities in the world of AI.
Well, following some management changes over the last couple of years, GameStop has quietly been changing its strategy in hopes of once again winning over the investment community.
Let's explore what triggered the excitement around GameStop in the first place and why shares subsequently sold off. From there, I'll dig into a new initiative at the company and explain why I think GameStop stock could be on the verge of going parabolic once again. Is now the time to scoop up shares in this once-upon-a-time Wall Street darling?
The chart illustrates GameStop's revenue, net income, and share price over the last several years. The gray column toward the left side of the graph represents a short-lived recession during the early days of the COVID-19 pandemic.
One thing that might look off is that during 2021, GameStop's revenue was experiencing a precipitous decline -- as illustrated by the decreasing purple line. However, at this exact same time, the company's share price (the blue line) reached an all-time split-adjusted price of roughly $87.
Generally speaking, decelerating sales and modest profitability aren't the combination for a rising share price. So, what drove the excitement in GameStop?
During the peak days of the pandemic, a forum called r/wallstreetbets became popular on the chatroom website Reddit. A user on the website, who goes by the social media moniker Roaring Kitty, started promoting his analysis on GameStop.
What followed was a rising interest in GameStop from the retail investor community, with many investors blindly followed Roaring Kitty into investing in the stock. The pronounced buying activity in GameStop triggered a short squeeze of epic proportions -- and GameStop stock went to the moon for a brief moment in time.
