In 2019, I invested in GameStop $GME and made a 3300% profit when I sold in January 2021. This is my best investment ever.
The stock price of GameStop is about $20, a price which was undervalued according to my last analysis of March 2021. Is it a buy?
The $20 is misleading since the company had a 4:1 stock split, and it also issued shares to raise capital. The $18/share is equivalent to $94/share(old). The number of shares went from 65 million to 305 million. While the split doesn't affect valuations, the share issuance does.
Would I have bought GameStop at $94 two years ago? No. It was overvalued.
We don't have to do a complicated analysis to know if GameStop is a buy or not.
The only reason why I should consider buying GameStop again at this price is if things have improved over the past two years.
The balance sheet is better as the company repaid all its debt and raised cash. They used the cash to reinvest in the business. But from operations itself, cash generation is actually worse. Ryan Cohen invested in the company to transform it, and we are yet to the results of this transformation.
There were two main catalysts two years ago, the new console cycle and the short squeeze.
It has been over two years now since Microsoft $MSFT and Sony $SONY released the Xbox and PS5, respectively. The peak gains from this new console cycle are over for GameStop. As for the short squeeze, only 20% of the shares outstanding now are short. There can be another short squeeze, but it won't be as in 2020-2021. Besides, this is not based on fundamentals and should be avoided.
Things are looking worse for GameStop today than two years ago. If $94 was expensive two years ago, it definitely is today.