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  • Writer's pictureIshfaaq Peerally

Too late to Buy GameStop Stock?

GameStop $GME stock price is finally moving up. Is it too late to buy? There are two main catalysts that would drive the price of GameStop, the new console cycle, ie, the PlayStation 5 from Sony $SNE and the XBox from Microsoft $MSFT ;and the consequent short squeeze for the stock. But the recent gains is because of a 10% investment in GameStop from Ryan Cohen, founder of Chewy.

After the sales of Chewy to Petsmart, Ryan Cohen invested in Apple $AAPL and is now its largest individual shareholder. He also invested in Wells Fargo. Now, he's seeking a third investment, GameStop. He wants to play an active role in GameStop and his knowledge of online retailing can help.

You should not invest in a company because other people are investing in it. The main reason why I invested in GameStop is because it is a pure value play, a cigar butt stock. They have more cash than debt and more cash that current market cap. There is a high probability that GameStop will generate more free cash flow in the coming years than current market cap and can return money to shareholders.

250% of the float of GameStop are being shorted and sooner or later, the short sellers will need to take profits, in other words, buy the shares. The probability of a short squeeze happening is really high.

In my opinion, GameStop is still cheap. It is cheaper than what I will consider its intrinsic value even with a large margin of safety. It is not as cheap in June but with the new console cycle coming in November, it is still a good investment. The risk on the investment is lower but it will remain a volatile stock.

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