CHWY - GameStop Stock Looks Like a Sinking Ship: Now's the Time to Jump
2024-07-10 06:15:00 ET
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GameStop’s (NYSE: GME ) stock continued its decline last week, driven by fading meme stock momentum which was initially spurred by meme trader Keith Gill. GameStop stock dropped 3% to $24.18 by Friday’s close. Gill’s bullish views on GME previously sparked significant price increases in May and June.
Since early June, Roaring Kitty scaled back on GameStop after boosting his holdings to 9 million shares and hosting his first livestream since 2021. As GME’s price dropped, Gill appears to have turned his attention to other prospective stocks.
Notably, Chewy (NYSE: CHWY ) stock surged after the meme trader released a post featuring a dog cartoon, sparking trader interest. He later disclosed buying 9 million shares of Chewy to the SEC, influencing meme stock trends.
Will GME rebound this July? In my point of view, I don’t think so.
Roaring Kitty’s Shift to Chewy
Keith Gill surprised investors by shifting focus to Chewy, triggering a stock surge with a dog cartoon tweet. His SEC disclosure of 9 million Chewy shares raised questions about his long-term strategy, sparking speculation on portfolio diversification and a potential move away from GameStop.
Gill’s influence on Chewy’s rise underscores social media’s power in meme stocks , highlighting their unpredictable nature.
GameStop’s stock struggled as it lost momentum from Gill’s influencer-driven meme stock phenomenon. The recent decline underscores the reliance on ongoing influencer engagement for stock momentum, with Gill’s absence affecting investor enthusiasm. Future performance hinges on Gill’s potential return to active promotion.
There’s Always the Potential for Future Litigation
A recent lawsuit filed against Keith Gill alleging a “pump and dump” scheme with GME stock was swiftly withdrawn after filing. GameStop shareholder Martin Radev accused Gill of securities fraud in a proposed class action in Brooklyn federal court. However, Radev voluntarily dismissed the lawsuit in a court filing on Monday afternoon.
Radev dropped the suit without explanation, and his lawyers have not responded to various inquiries on the matter. GameStop posts on X have resumed, along with Chewy posts, indicating the potential headwind for meme stocks is temporarily removed. The suit alleged Gill purchased 120,000 GameStop call options before a stock surge.
On June 2, Gill disclosed owning 5 million GameStop shares and 120,000 call options expiring on June 21. By June 13, his holdings increased to over 9 million shares after selling/exercising all options for profit, boosting his stake significantly.
GameStop’s shares, which closed around $23 on Monday, saw a rise less dramatic than the January 2021 frenzy, where it surged more than 1,700% amid a battle between retail investors and hedge funds.
The question is whether future litigation may arise, and if so, what that will mean for meme stocks across the board. Investors following any influencer into a stock for pure speculative purposes are taking on very high risk for very uncertain returns, and ought to be aware of the risks.
GameStop Stock Isn’t Worth It
There are now new meme stocks investors are clearly turning their attention to. Simply put, if the crowd shifts its focus away from GameStop (which it appears to be doing), there really isn’t any case that can be made for speculators or investors to hold this stock.
From a fundamentals perspective, GameStop’s quarterly year-over-year sales drop of 30% in Q1 has to be worrying. There’s little indication at this point in time that a turnaround is truly coming to fruition.
While the company clearly has bolstered its cash position by selling shares into previous rallies, it’s unclear whether the company can be good stewards of this capital and generate returns for investors moving forward.
Accordingly, I think GameStop is simply a stock to be avoided. It’s likely too risky a bet on the long or short side of the equation, so I’m going to sit back, make some popcorn, and enjoy the fireworks from the sidelines.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.
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