Please ensure Javascript is enabled for purposes of website accessibility

How GameStop's Story Could Get Even Weirder

By Keith Noonan - Apr 12, 2021 at 10:03AM

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

The market's hottest meme stock could serve up more big surprises.

GameStop (GME 0.92%) stands as one of the year's best-performing stocks. The video game retailer's stock surged thanks to a massive short squeeze that occurred near the end of January, reaching an all-time high of $483 per share. It went on to see more volatile swings and currently trades around $158, but it's still up 740% year to date and has a market capitalization of roughly $11 billion based on current prices.

GME Chart

GME data by YCharts.

The retailer had struggled for years as customers shifted to purchasing games digitally, but its stock has since become one of the most exciting stories on the market. Some GameStop bulls are betting on another short-squeeze surge, and others think that the big e-commerce pivot led by activist investor and Chewy co-founder Ryan Cohen will be successful. Cohen has already helped energize the effort, and the company recently announced it was moving to elect him as the chairman of its board of directors. 

What comes next for GameStop? Read on for a look at two ways the stock's saga could get even weirder.

A joystick on top of stacks of money.

Image source: Getty Images.

Could GameStop soar in a market crash?

GameStop's performance has been extraordinary in many respects, and beta is one financial metric in particular that highlights just how atypical the stock's run has been over the last year. Beta measures how volatile a stock is compared to the broader market or an index such as the S&P 500. A beta value of 1 suggests that the stock in question trades in line with the market, while a beta value of 2 would suggest that the stock would typically post gains or losses that were twice as large as the index's.

It's also possible, but rare, to have negative beta values -- which indicates that the stock's movements are the inverse of what the broader market is doing. GameStop currently has a one-year beta value of minus-26, which is lower than any other company with a market capitalization of at least $2 billion. At the moment, it is still the ultimate "bizarro world" stock. Using beta as a core criteria might suggest that GameStop would be a great stock to own in a market meltdown.

Does that mean the stock is a good hedge against a market crash? Probably not. Trying to chart GameStop's future stock performance based on its incredibly wild trajectory over the last year isn't sensible, and beta is only one metric. It doesn't provide a comprehensive or predictive picture of a stock. 

Still, the retailer's negative beta value is eye-catching, and GameStop emerging as a top performer whenever the next crash hits would take the stock's crazy run to a whole new level. It certainly wouldn't be the first time that the shares have defied conventional investing logic, and GameStop's "meme stock" status opens the door for unexpected twists and turns.

What could be crazier?

Many investors and analysts have long held that GameStop is on a slow death march and that it's only a matter of time before the company joins Blockbuster and FYE among the ranks of outmoded, brick-and-mortar retail chains. But what could wind up being the weirdest development in the GameStop saga is if the stock's explosive gains after short squeezes and meme momentum open the door for a successful e-commerce turnaround. 

GameStop's valuation has benefited tremendously from its meme stock status, and it could play a significant role in funding the company's big e-commerce push. It recently announced it would raise funds through the sale of up to 3.5 million shares. The company ended the year with $635 million in cash on the books, and a successful share offering at current prices would raise roughly $550 million to put toward its growth initiatives.

Many challenges remain for the company and its online retail reinvention, but if the GameStop team manages to pull it off, it would probably go down as one of the greatest corporate comebacks in history.

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
$123.42 (0.92%) $1.12

*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 analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/04/2022.

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

Premium Investing Services

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