Can the GameStop share price climb higher?

The GameStop share price has potential, but this Fool’s going to sit on the sidelines and watch the company’s e-commerce transition.

| 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.

Woman looking at a jar of pennies

Image source: Getty Images

The GameStop (NYSE: GME) share price has been one of the most interesting stock markets stories of the past year. Shares in the company have whipsawed as a tug of war has developed between smaller investors and hedge funds on Wall Street. 

However, recently, an uneasy peace has developed. Shares in the specialist computer gaming retailer have bobbed around the $200 per share market since March. Over the past 12 months, the stock has increased in value by around 4,800%. 

But while the GameStop share price has taken on a mind of its own, the company has been working to transform its business model. 

Moving online

Traditionally, the company has operated a brick-and-mortar-store-orientated business model. But it’s been investing more in online operations more recently. 

GameStop announced it had taken a lease of a 530,000 sq ft fulfilment centre in Reno, Nevada, in its latest online expansion. This new facility will help the group expand its e-commerce operations across the west coast.

This expansion follows GameStop’s entry into a lease of a 700,000 sq ft facility in York, Pennsylvania.

The company’s share price performance has actually helped its transformation programme. As investors have clamoured to buy GameStop stock, the firm has raised $2bn by issuing new shares. 

This has provided much-needed capital for the group to spend on its e-commerce business. 

Interestingly, the rally in the GameStop share price has inspired a virtuous cycle. The company was struggling for funding before investors took notice of the business. As its valuation has increased, it’s been able to issue more shares and reinforce its balance sheet (AMC has been able to do the same). 

With more capital to play with, the company has actually become a better investment, and its fundamental value has increased. 

I think there’s now also a chance that if GameStop’s e-commerce drive starts to pay off, shares in the company could head even higher as the market reevaluates the business’s potential. 

GameStop share price risks 

Of course, the company’s success in this market is far from guaranteed. It’s going to have to take on larger, more established competitors.

Even with the GameStop share price at $200, I think it’s unlikely the company will be able to raise enough capital to compete effectively with its multi-trillion-dollar peers. 

While I do think the company has potential, I won’t buy the shares today. Although GameStop’s growth efforts are starting to yield results, I’d rather wait and see how the firm’s transition evolves before buying.

I think it’ll encounter many challenges in the months and years ahead. It’s unclear how the business will be able to deal with these challenges. 

As the company pushes ahead with its growth plans, I should be able to build a better picture of its long-term potential. That’s why I’m happy to sit on the sidelines for the time being. 

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

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop
Investing Articles

With a spare £500 I’d buy these UK shares

A financial services giant, a FTSE 250 distributor, a FTSE 100 tech stock, and a gold miner are on the…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Should I buy this defensive FTSE 100 stock for growth and returns?

This Fool takes a closer look at a FTSE 100 stock to see if it could boost his holdings via…

Read more »

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

I robbed Mr Market of this cheap FTSE stock!

This FTSE 250 stock has crashed by almost 30% in six months. But I recently bought into this battered business…

Read more »

Mature people enjoying time together during road trip
Investing Articles

3 reasons I’m backing NIO shares to soar!

NIO shares have bounced up and down this year. But where will the share price go next? My bet is…

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Up 300%, is the Hurricane Energy share price an opportunity too good to miss?

This Fool looks at why the Hurricane Energy share price has soared in the past 12 months. Should he buy…

Read more »

Middle-aged white man pulling an aggrieved face while looking at a screen
Investing Articles

The BT share price crashes 20% in a month. Buy now?

The BT share price has crashed by almost a fifth since coming close to £2 on 12 July. After this…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

How I’d invest £1,000 in growth shares today to target £5,000 in a decade

Our writer reckons he could do well by choosing the right growth shares today and holding them in his portfolio…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How passive income from stocks can speed up early retirement

By investing patiently over the years, buying quality shares has given me enough passive income to retire 10 or even…

Read more »