My Exit Strategy on GameStop Stock
GameStop $GME is a very interesting company and stock to look at, both from the perspective of a fundamental analyst and a technical analyst. The stock is a prime example of a cigar butt stock and at the same time, it may undergo a short squeeze. There's so much happening to this stock right now, from the recent partnership with Microsoft $MSFT , the proxy fight in June, Ryan Cohen's investment, and the new console cycle.
There are 6 possible scenarios of what may happen to GameStop:
1. Fast Bankruptcy
If there's so many people are shorting GameStop, it is because they expect it to go bankrupt and to be the next Blockbuster. GameStop failed to capitalize on digital growth and now has big competitors. The good news is that GameStop cleaned up their balance sheet, they restructured their debt and doesn't have much to repay in the coming months. Besides, GameSTop has more cash than debt. A fast bankruptcy is now unlikely.
2. Slow Bankruptcy
Maybe this could be the last console cycle that GameStop survives as consoles are becoming irrelevant. GameStop will have to fundamentally change their business.
GameStop is already trying new concept stores, where gamers can try new games and organize tournaments but still they have to close most of their stores in order to save the business. The management and board of directors of GameStop changed over the past 3 years. 9 out of the 10 board members are new including former CEO of Nintendo America and former CEO of Walmart US. There's nevertheless a lot of pressure from activist investors, Michael Burry, Permit Capital and Hestia Capital. Recently Ryan Cohen, who founded Chewy then sold it to Petsmart, bought 10% of GameStop. The CEO and former CFO of Petsmart are on the board of GameStop.
4. Short Squeeze
A short squeeze seems inevitable with so many activist investors which along with the insiders owning 35% of GameStop and 292% of float being shorted. A short squeeze happened with GameStop in 2012 as the stock gained 250% in 2 years.
5. Pump and Dump
The investors who profited from the short squeeze left after that and the stock was heavily shorted again. The same thing can happen again as GameStop is not really loved by Wall Street.
If GameStop goes private, then they don't have to worry about Wall Street and the short sellers anymore.
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