Video game retailer GameStop (NYSE:GME) shifted its focus onto e-commerce and nonfungible tokens (NFTs) for a while. That didn’t work out well. Now, GameStop is returning to its roots with a shift back to brick-and-mortar sales. It will take some time to determine whether this strategy will be successful, however, so now is a time to be cautious with GME stock.
It’s certainly possible that GameStop’s loyal investors might prove the skeptics wrong this year. There are indications of insider buying activity, and the short squeeze crowd could push up the GameStop share price for a while.
Serious long-term investors shouldn’t jump into a hasty trade, however. GameStop remains a “show-me” story and no one knows the ending to that story yet. Therefore, it’s perfectly fine to watch GameStop from the sidelines.
Short-Selling GME Stock Is a Dangerous Proposition
Even if you’re a skeptic of the company, this doesn’t mean you should take a short position against GameStop. Always remember, short sellers can lose more money than they have in their account if a short position goes against them.
Analysts with S3 Partners gave GME stock a perfect Squeeze Score of 100. The “Squeeze Score overlays the significant components for a squeeze, higher financing costs and unrealized losses,” according to Ihor Dusaniwsky, S3’s managing director of predictive analytics. So, a huge share-price pop could occur at any moment, without warning.
It’s also worth noting that Director Larry Cheng bought 5,000 shares of GameStop through Cheng Capital LLC, after having previously purchased 4,000 shares of GameStop. Moreover, this isn’t the only evidence of insider buying at GameStop.
GameStop Chairman Ryan Cohen bought 100,000 shares of GME stock last year. GameStop Director Alain Attal purchased 1,500 shares of the company’s stock.
The Ball Is in GameStop’s Court
Now, it’s time for serious investors to ask themselves a question. Are the short squeeze potential and insider buying activity enough to persuade you to invest in GameStop now?
Frankly, buying a stock in hopes of an imminent short squeeze isn’t a viable long-term investment strategy. Also, insider buying may be encouraging, but it shouldn’t be enough to convince people to wager their hard-earned capital on a stock.
At the end of the day, the bottom line should be the bottom line. GameStop needs to demonstrate, that its refocus back to brick-and-mortar sales is successful, and not just once but over multiple quarters.
The ball is in GameStop’s court, but that puts the burden of proof on the company rather than on the skeptics. GameStop 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.”
GameStop experimented with NFTs and e-commerce sales in 2022, but halted those efforts recently. Maybe that’s for the best. Only time will tell, though. From now on, what GME stock investors should want to see is not just one, but multiple profitable quarters.
So, Will GME Stock Prove the Skeptics Wrong in 2023?
Insider buying activity and short squeeze possibilities aren’t, by themselves, compelling reasons to invest in GameStop. The company still has to prove to the skeptics that it can remain profitable throughout 2023.
Just be patient, as haste can be very costly in the world of investments. What you can do is keep tabs on GameStop’s financials. At the same time, it’s wise to stay out of the trade when it comes to GME stock.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.