What happened
Shares of the video game retailer and meme stock extraordinaire GameStop (GME) were 7.3% lower as of 12:04 p.m. ET today in what has been a busy week of news for the company. The stock is still up more than 65% over the last five days of trading.
So what
The busy week for GameStop started on Tuesday when a Reddit user on the subreddit WallStreetBets wrote that GameStop traded at a more than 58% discount to its fair value over the last 15 months. Considering WallStreetBets is the subreddit that played a big role in sparking GameStop's monstrous run in 2021, it comes as no surprise that posts like that can get the stock moving.
Image source: Getty Images.
Earlier this week, chairman Ryan Cohen also purchased 100,000 shares of the company, which upped his stake to 11.9%. "I put my money where my mouth is," he wrote in a tweet Tuesday. Cohen, the founder of the pet e-commerce company Chewy, is an activist investor in GameStop and is seen by many investors as the man who can revive the embattled company.
Yesterday, GameStop received some negative press after the Boston Consulting Group sued the company, claiming the firm is owed $30 million for work it did for GameStop more than two years ago. Management plans to contest the lawsuit.
Now what
I suspect the decline in GameStop's stock price has more to do with investors taking profits after a big week, rather than the lawsuit. Trading at more than a $10 billion market cap, GameStop has still not achieved profitability but does only trade at about 1.6 times forward revenue.
Still, the business strategy for long-term sustainability is not quite clear, and the stock continues to be driven by the fact that it is the pioneer of the meme-stock movement. GameStop remains very risky, and if you invest, expect lots of volatility.
