GameStop (NYSE: GME) shares are attracting attention again as investors and traders rush to capitalise on the stock’s momentum.
The company, which rose to fame last year in the so-called Meme Stock rally, has become a focal point for market participants. The stock, which was trading for around $10 in November 2020, is now worth more than $200 a share. Over the past 12 months, it has returned 1,760%.
The outlook for GameStop shares
Usually, I would stay away from these types of companies. Volatile equities can be incredibly difficult to own. As it is impossible to time the market. I never know when to buy or sell, which exposes me to the risk of significant losses and the potential for large gains.
However, in the case of GameStop, the organisation has used its new-found market fame to turbocharge a turnaround plan that has been in the works for years. The company’s management has been able to tap investors for additional cash to fund expansion initiatives in the crypto space and e-commerce.
The results have been quite impressive. GameStop reported revenues of $1.2bn for the three months to the end of July, up 26% year-on-year. Operating and net income was still negative for the period, but the group ended the quarter with $1.7bn of cash on hand.
With annual losses totalling in the region of $200m, this suggests the group now has enough cash to continue operating for nearly nine years without making a profit.
Wall Street expects the group to report a small profit next year although, based on these projections, the stock is trading at a forward price-to-earnings (P/E) multiple of more than 1,300. That is a bit pricey for me.
I am also concerned about the company’s management. At the end of last week, after the market closed before the weekend, the video game retailer announced its chief operating officer had quit just seven months after taking the job.
Time zone constraints
This is one of the biggest challenges I face as a UK investor. Due to time zone constraints, I will always be behind the curve on news flow from across the pond. Sometimes it is also challenging to find information released by companies. I do not have the same problems when it comes to investing in UK businesses.
As such, while I am encouraged by GameStop’s progress, I would not buy the shares as a UK investor. There will always be a chance the company will release some important news update I will miss, because of where I am based. I cannot avoid this, and it is an added risk I want to avoid with such a volatile investment.
Therefore, I am happy to avoid GameStop shares as I do not want exposure to additional risks.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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