GME share: annoying reaction to second quarter earnings is actually good news
If you tell me that Gamestop (NYSE:GME) would be flat after his earnings, I wouldn’t have believed you. GME stock rose only 0.2% on Thursday after announcing its second quarter on September 8. After the last two reports things got a little too exciting, so I was expecting fireworks this time around. Instead, investors shrugged their shoulders and continued like it was a normal day. That could possibly be good news. This may mean that GME shares can be traded on their own merits, not for the hype.
GME stocks have been the poster child for All Things Wild on Wall Street this year. It is in the hands of Reddit traders and demolished pros and amateurs alike. Multi-billion dollar companies have closed their doors and liquidated their assets after being on the wrong side of trade.
Therefore, my first guess today is that I don’t know what I don’t know.
Investors should leave room for error
When I trade GME stocks I should be humble with my belief. That aside, management delivered a decent report. Granted, Gamestop missed analysts’ estimates. But it might have more to do with false assumptions rather than bad results.
The actual performance over last year has been an all-around beat. In the second quarter, the company increased net sales 26% year-over-year (YOY), from $ 942 million to $ 1.18 billion. It also improved profitability levels. I call it progress. Or, at the very least, that’s no reason to sell GME.
Gamestop was fundamentally in trouble even before Covid-19. In 2019, total turnover decreased by around 20% compared to previous years. The management was against the ropes anyway and had to adapt to the changing environment. However, it still is, so nothing has really changed over the past three years.
Performing due diligence is difficult when a business is still recovering from a global shutdown. Financial measures are too far-fetched to be properly assessed. Therefore, we have to rely on simple logic and the actual performance of the GME share price.
GME share is based on increased upside potential
Throughout the year, GME’s stock has advanced with higher lows. More recently, the bulls managed to hold $ 147 per share – and they rode a rally of over 50% from there.
They have already returned about half of those gains. So, I can assume that there is an effort to base around $ 174 per share. Then the opportunity is to hold the stock for a bullish trade opportunity going up to $ 225. If the bulls finally manage to break out, then the rally could even reach $ 300. Essentially, one target becomes the potential trigger for the next.
I am not a permabull on this stock. I wrote clearly about Gamestop’s business challenges. But I also traded the price action in front of me. Today, my opinion is that management is adjusting. Meanwhile, recent price action has been more bullish than bearish. These two elements combine to make an argument in favor of owning GME. This makes more sense than shortening it. In fact, bypassing it is the only thing i would never do.
Investors must either be in GME stocks or wait to invest. However, it is not a suitable game for all types of investors. The long-term thesis is viable for those who believe in it. Otherwise, this is an ongoing or emerging business opportunity.
This is how I approached You’re here (NASDAQ:TSLA) when he was under duress a few years ago. Even though I didn’t totally believe it, I never bypassed it. I was still looking to buy the dips. Gamestop could offer the best with this same approach.
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At the date of publication, Nicolas Chahine had (directly or indirectly) no position in any of the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Nicolas Chahine is the Managing Director of SellSpreads.com.