Some people don’t take meme stocks seriously. However, video game retailer GameStop (NYSE:GME) is worth watching and possibly even investing in. However, even if you respect GameStop as a business, don’t just buy GME stock at any price.
GameStop is in the midst of a transformative period. Last year, the company focused on e-commerce sales and non-fungible tokens (NFTs). More recently, though, GameStop is getting back to its core business model by re-focusing on the company’s brick-and-mortar locations.
If you’re on board with this plan, then you might consider a share position in GameStop. Still, patience is the key here, as successful investing isn’t always about buying; sometimes, it’s about waiting.
What’s Happening With GME Stock?
GME stock recently traded between $20 and $21 but could be poised for a huge rally under the right conditions. As you may recall, meme-stock traders targeted GameStop for massive short squeezes in 2021. There were also smaller squeezes in 2022.
Could another meme-stock rally occur in the coming weeks? It’s certainly possible. Notably, GameStop has a short interest (measured as percent of float) of 21.28%. When this metric gets above 15%, meme-stock traders should pay attention. Furthermore, when it’s above 20%, a powerful short-covering rally could be imminent.
Also, analysts with S3 Partners gave GME stock a Squeeze Score of 100, which is a perfect score on that scale. Ihor Dusaniwsky, S3’s managing director of predictive analytics, explains that the “Squeeze Score overlays the significant components for a squeeze, higher financing costs and unrealized losses.”
GameStop Is a Viable, Respectable Business
Sometimes, investors pigeonhole meme stocks as disreputable or even toxic. Yet, even though GameStop has been targeted by the meme-stock crowd and has short-squeeze potential this year, the company is still a viable business.
As I emphasized earlier, GameStop is making a smart move by abandoning its e-commerce and NFT ambitions. As the company admitted in a Form 10-K, “Revenues earned from our digital asset wallet and NFT marketplace were not material to the consolidated financial statements for fiscal 2022.”
Moreover, GameStop President and CEO Matthew Furlong envisions his company as being on a “path to full year profitability.” That’s not just empty talk, as GameStop reported a $48.2 million profit for the fourth quarter of the fiscal year ended Jan. 28, 2023. The company sustained a net loss of $147.5 million in the year-earlier quarter, so it’s reasonable to conclude that GameStop is on the comeback trail.
What to Do With GME Stock
GME stock tends to bounce off of $16; it’s happened a couple of times this year already. So, you can set your buy limit order at $16. At that price, the short-squeeze potential is likely to be very intense.
To implement this strategy, you’ll need to have some patience and a lot of faith in GameStop. However, your faith in GameStop can be justified by the company’s progress on its path to a profitable profile. All in all, there are risks if you choose to invest in GameStop, but the rewards could be substantial if you wait for the right buy price.
On the date of publication, David Moadel did not have (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.