The GME share price: have we seen the bottom?

The GME share price seems to have stabilised in recent days, but that doesn’t necessarily mean the business is a good acquisition.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Risk reward ratio / risk management concept

Image source: Getty Images

I think it’s fair to say the GME (NYSE: GME) share price has been on a pretty wild ride over the past three months. 

The stock started the year changing hands at a price of around $17 per share. However, by the end of January, the stock’s closing price had reached more than $347. Unfortunately, these profits quickly evaporated and it fell to a low of around $40 in the middle of February. 

But, since then, it’s steadily recovered. At the time of writing, the GME share price is changing hands at just over $122

Does this mean we’ve seen the bottom for the stock, or could there be further declines to come?

The GME share price 

Much of the stock’s performance over the past three months has been unrelated to its fundamentals. By that, I mean the share price action has been driven by investor buying and selling rather than any improvement or deterioration in the company’s underlying business operations. 

Here at the Motley Fool, we’re all long-term fundamental investors, which means we focus on underlying business fundamentals rather than trying to guess short-term share price movements. 

With that in mind, I think the best way to determine whether or not the GME share price has reached a bottom is to look at the firm’s underlying profitability. 

Here, there’s a significant discrepancy between the recent share price performance. For the company’s fiscal third quarter, it reported a total loss of $19m. That was a substantial improvement of around 78% on the same period a year ago.

However, revenues declined by around 30% year-on-year. For the company’s fiscal 2021 financial year, Wall Street analysts forecast a total loss of $140m. Still, they expect losses to fall for 2022, projecting a total loss of $5m for that fiscal period. 

These are just projections at this stage so there’s no guarantee the company will hit these targets. It could outperform or underperform Wall Street expectations. 

If it does outperform expectations, things could change quickly for the firm. If it returns to profit, investor sentiment may improve. This isn’t impossible. In the past, the firm has benefitted from new blockbuster game and game console releases. A slate of new releases may lead to a surge in demand for its goods. That would push up sales, plus GME’s profit margins and could lead to a profit. 

Challenging outlook 

This makes it incredibly challenging to determine whether or not the GME share price is worth buying at current levels. Not only is the company’s future highly unpredictable, but the group’s losses make it difficult for me to place a value on the stock. 

As such, it isn’t very easy for me to tell if GME has reached a bottom or not. As I’ve said, the share price seems to be driven by short-term investor sentiment rather than underlying fundamentals. Revenues are falling, and the company is bleeding money. But, for some reason, the market still thinks the business is worth nearly $9bn. 

That doesn’t make much sense to me. Therefore, I wouldn’t buy the GME share price for my portfolio today. With so much uncertainty surrounding the outlook for the stock, I think there are better opportunities out now on the market, with brighter futures. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Modern suburban family houses with car on driveway
Investing Articles

Should I snap up Taylor Wimpey shares at £1.30?

With the Taylor Wimpey share price down by almost 30% this year, should I snap up some shares while it's…

Read more »

Young female analyst working at her desk in the office
Investing Articles

How I’m finding shares to buy now – and keep for a decade

Our writer has been looking for shares to buy using an approach that looks both at long-term profit prospects and…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

What’s happening to the Petrofac (PFC) share price?

The Petrofac (LON:PFC) share price has had a seriously erratic year so far. I take a look at the latest…

Read more »

Young black woman in a wheelchair working online from home
Investing Articles

The Aviva share price is flying! Should I buy this 7% yield?

Despite recent gains, Roland Head thinks the Aviva share price could still be too cheap.

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

Here’s 1 passive income opportunity not to be missed!

This Fool details a passive income opportunity that could bolster his holdings, and the shares trading at cheap levels too.

Read more »

Young brown woman delighted with what she sees on her screen
Investing Articles

The Legal & General share price is dirt-cheap with a juicy dividend yield!

Jabran Khan takes a closer look at the Legal & General share price which looks like an opportunity to boost…

Read more »

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

If I’d invested £1,000 in this top lithium stock 5 years ago, here’s how much I’d have now!

This lithium stock has gone from strength to strength over the past year. But has it flown too high, or…

Read more »

Smiling white woman holding iPhone with Airpods in ear
Investing Articles

A growth stock with a price-to-earnings ratio of just 9.7! Should I buy Yalla?

I'm generally not too keen on investing in dollar-demonated stocks at the moment. But Yalla, with its low price-to-earnings ratio,…

Read more »