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.
