Please ensure Javascript is enabled for purposes of website accessibility
Free Article Join Over 1 Million Premium Members And Get More In-Depth Stock Guidance and Research

How GameStop Shares Skyrocketed 58% Last Month

By Anders Bylund - Dec 7, 2020 at 3:06PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Activist investors with a deep knowledge of high-growth e-commerce operations asked the retailer to try a very different strategy.

What happened

Shares of video game retailer GameStop ( GME -1.25% ) rose 58.2% in November, according to data from S&P Global Market Intelligence. The gains started when an activist investor presented a radically different business plan for GameStop.

So what

Under the leadership of growth-oriented pet food retailer Chewy co-founder Ryan Cohen, venture capital firm RC Ventures built a 10% ownership stake on GameStop before proposing a dramatic strategy shift. On Nov. 16, RC Ventures sent a public letter to GameStop's board of directors. In the letter, RC underscored the explosive growth that is happening in the video gaming industry and noted that GameStop should be able to capture lots of shareholder value with the right strategy.

"Unfortunately, it is evident to us that GameStop currently lacks the mindset, resources and plan needed to become a dominant sector player," RC Ventures said. "In the two most recent quarters alone, the Company has lost another $277 million. To add insult to injury for GameStop's stockholders, the size of the global gaming market has grown by more than 2.5x since the last console cycle."

GameStop shares rose 9.5% the next day and have been trending upward ever since.

Close-up shot of a female hand writing Dear Board of Directors on a sheet of papyrus.

Image source: Getty Images.

Now what

RC Ventures wants GameStop to forget about physical hardware sales, and instead focus on e-commerce sales and digital streaming. The company should sell off its European and Australian store networks, decline to renew expiring store leases, and invest the upcoming cash windfall from the gaming console refresh into innovative, all-digital gaming services, RC argues.

"Taking the right steps in 2020 and 2021 can enable GameStop to own a bigger share of the market when estimated industry sales explode to more than $200 billion per year in 2023," the letter continued.

Investors embraced the call for action. By the end of the month, GameStop's shares had soared 491% from the market bottom in early April. RC Ventures' ideas make a ton of sense, but I am not holding my breath while waiting for GameStop's leadership to adopt a dramatically different strategy. Short-selling investors have a massive interest in this stock, and for good reason. GameStop's skyrocketing stock seems to be primed for a fiery crash at this point.

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

GameStop Corp. Stock Quote
GameStop Corp.
GME
$199.48 (-1.25%) $-2.53
Chewy, Inc. Stock Quote
Chewy, Inc.
CHWY
$67.74 (-1.34%) $0.92

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
673%
 
S&P 500 Returns
142%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 11/30/2021.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Our Most Popular Articles

Premium Investing Services

Invest better with the Motley Fool. Get stock recommendations, portfolio guidance, and more from the Motley Fool's premium services.