GameStop (NYSE:GME) stock has taken investors on a wild ride in 2020. Shares dove by 50% through the pandemic market slump in March and April but are up more than 150% heading into the retailer's third-quarter earnings report.

That rally reflects optimism about the holiday shopping season, next-generation console demand, and a new partnership with Microsoft. But it also raises the stakes for that operating update in just a few days. So, let's take a look at the main trends to watch in GameStop's announcement on Tuesday, Dec. 8.

Two children playing video games on a console.

Image source: Getty Images.

The sales growth challenge

GameStop stock has nearly tripled in the three months since its last earnings report, but the bigger picture doesn't inspire much confidence. Yes, this holiday selling period will likely see a surge of interest in its category as people continue to entertain themselves around the home and as gamers upgrade their consoles to the latest releases from Microsoft and Sony.

But the video game retailer has bigger problems to shake. An 800% surge in e-commerce sales couldn't keep the chain from reporting surprisingly weak overall sales in the second quarter, with revenue declining 27% year over year. Revenue is down 31% in the first half of 2020 after slumping in each of the previous two fiscal years.

GME Revenue (TTM) Chart

GME Revenue (TTM) data by YCharts TTM = trailing twelve months

CEO George Sherman and his team said back in early September that GameStop's latest sales challenge was driven by temporary pressures like COVID-19 outbreaks and the approaching launches of next-gen console hardware. We'll find out on Tuesday whether the chain saw any relief through late October. Investors aren't expecting much good news on this score, with Q3 sales likely to fall by 24%.

Financial wins

The news has been much more positive on the financial front. Aggressive cost-cutting and store closures helped GameStop accumulate plenty of cash in Q2, and the company has put some of those resources to work by retiring debt. A slimmer debt burden and reduced physical store presence could allow the company to operate profitably, even with much lower sales.

Tuesday's report likely won't show off that potential. In fact, investors are bracing for losses of about $0.85 per share compared to a $0.49 per-share loss a year ago. Yet Wall Street might still be happy with seeing plunging expenses and a continued shift toward an asset-light operating model in Q3.

Looking to 2021

The surging stock price suggests investors are expecting to hear a positive outlook from GameStop as the holiday shopping season kicks off and gamers finally gain access to the new consoles and software titles they've been waiting for. The fiscal fourth quarter includes a flood of highly anticipated launches on both scores, and so the chain could post its best holiday period in years.

That success would help GameStop finish a tough year on a positive note, but it wouldn't erase its bigger growth challenges. That's why video game investors might want to watch this rebound story from the sidelines and wait for more consistent growth -- and a return to profitability -- before considering buying GameStop stock.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.