Popular meme stock GameStop (NYSE:GME) is scheduled to report fiscal third-quarter earnings on Dec. 8. The company is struggling to turn around its finances. For three years running, GameStop has generated negative earnings per share.

However, support from retail investors willing to pay astronomical prices for GameStop stock allowed the company to raise over $1 billion in cash. The low-cost capital is raising hopes that GameStop can return to profitability soon. 

Two kids playing video games.

Popular meme stock GameStop is up more than 900% in 2021. Image source: Getty Images.

GameStop is going on the offensive

In its fiscal second quarter ended July 31, GameStop reported sales of $1.2 billion. That's a 27% increase from the $942 million in sales it generated in the same quarter last year. Note, revenue was depressed in the previous year due to pandemic-related restrictions.

GameStop's troubling losses on the bottom line start with its long-running decreases in revenue. Over the last 10 years, GameStop's revenue has dropped at a compounded annual rate of 6%.

GameStop is losing popularity with gamers because it sells physical copies of games when consumer preference gravitates toward digital. If consumers decide to buy a game, they could buy a digital copy they can download, which they can usually start playing instantly. This is more appealing than driving to purchase a copy.

The other option, buying online and having it delivered, could take several days for customers to receive a game. The convenience advantage of digital games is unlikely to reverse. 

Fortunately, GameStop raised $1.1 billion in a sale of stock. The company used some of the cash to pay off debt. Compared to last year, GameStop has $425 million less debt on the balance sheet. The lower interest expense will help the company approach profitability.

As of July 31, GameStop had $1.78 billion in cash and equivalents. The improved balance sheet is giving management the ammunition to invest in growth initiatives. GameStop is opening a 530,000 square-foot fulfillment center in Nevada that will support its online sales.

Moreover, GameStop is investing in expanding its product catalog, a move it hopes will attract more customers looking for a broad selection of game titles. Whether these decisions will work to bring GameStop to profitability remains to be seen. Even so, it will take at least a few quarters to start seeing their full impact.

GameStop's stock price has surged this year

Analysts on Wall Street expect GameStop to report revenue of $1.2 billion in Q3 and a loss per share of $0.52. If the company hits Wall Street estimates, it would only be a penny improvement from the $0.53 it lost per share in the same quarter last year.

Nevertheless, GameStop stock is up over 900% in 2021. The retail investors that are buying GameStop are looking past the company's poor prospects. They intend to profit from the trade by causing a short-squeeze. Investors who consider a company's fundamental prospects important can wait for further progress toward profitability before thinking about 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.