What happened
Shares of the video game retailer and meme stock extraordinaire GameStop (GME 0.59%) were 7.3% lower as of 12:04 p.m. ET today in what has been a busy week of news for the company. The stock is still up more than 65% over the last five days of trading.
So what
The busy week for GameStop started on Tuesday when a Reddit user on the subreddit WallStreetBets wrote that GameStop traded at a more than 58% discount to its fair value over the last 15 months. Considering WallStreetBets is the subreddit that played a big role in sparking GameStop's monstrous run in 2021, it comes as no surprise that posts like that can get the stock moving.
Image source: Getty Images.
Earlier this week, chairman Ryan Cohen also purchased 100,000 shares of the company, which upped his stake to 11.9%. "I put my money where my mouth is," he wrote in a tweet Tuesday. Cohen, the founder of the pet e-commerce company Chewy, is an activist investor in GameStop and is seen by many investors as the man who can revive the embattled company.
NYSE: GME
Key Data Points
Yesterday, GameStop received some negative press after the Boston Consulting Group sued the company, claiming the firm is owed $30 million for work it did for GameStop more than two years ago. Management plans to contest the lawsuit.
Now what
I suspect the decline in GameStop's stock price has more to do with investors taking profits after a big week, rather than the lawsuit. Trading at more than a $10 billion market cap, GameStop has still not achieved profitability but does only trade at about 1.6 times forward revenue.
Still, the business strategy for long-term sustainability is not quite clear, and the stock continues to be driven by the fact that it is the pioneer of the meme-stock movement. GameStop remains very risky, and if you invest, expect lots of volatility.
