GameStop stock price was the talk of Wall Street last week. The GME shares rose by more than 60% on Friday and then dropped by more than 4% in extended hours. In total, the stock climbed by more than 1,800% in the past 30 days, bringing the company’s market cap to more than $22 billion. In the same period AMC stock price has risen by more than 450% while other meme stocks like Nokia, Blackberry, and Trivago have also jumped.
The background: GameStop is an embattled and unsexy company that has been in trouble for a while. As more people moved to online gaming, the firm’s revenue started to drop. It also started making losses, pushing its stock price to below $2.
Essentially, the once highly-successful retailer became a penny stock. As this happened, many hedge funds and retail traders placed short bets on the company, meaning that they would profit when the stock dropped.
These short-sellers, including Melvin Capital, were highly successful. That is until last week when traders using social media managed to pump the stock. In total, Melvin Capital and other short sellers lost more than $20 billion.
Today, with a market cap of more than $22 billion, GameStop is the 778th most valuable company in the world.
So, is Gamestop stock a buy? From a fundamental perspective, Gamestop stock price is significantly overvalued. The company’s revenue will continue falling as online gaming becomes the norm.
However, there are some positives. For one, the company could use its elevated stock price to boost its balance sheet. It could use the cash to carry out research and development and pivot to online gaming. Still, for long-term investors, it is worth to avoid GME stock because of its volatility. Consider the put and call option ratio and volatility below.
GameStop Put and Call ratio
On the daily chart below, we see that the GME stock price has been relatively volatile in recent days. It ended the week at $325, which is above all moving averages. While the stock will possibly have a pull-back in the near term, we should not rule-out a climb to $500 as the enthusiasm continues.
