What happened
GameStop (GME 3.17%) shares beat the market on Monday, jumping over 10% in early trading before settling to a 9% increase by 11 a.m. ET, compared with a 0.1% uptick in the S&P 500.
There wasn't any new official news out of the company, but the meme stock appeared to benefit from a bounce in activity on Reddit stock trading boards.
Image source: Getty Images.
So what
GameStop entered the weekend with solid momentum, having soared 50% in the prior five trading days. In that context, Monday's increase can be seen as a continuation of that trend, which was sparked by news that the video game retailer is attracting more insider ownership of its stock. Insiders sell shares for many reasons, but purchases usually occur because executives see a bright future ahead for the business.
GameStop also benefited from increased chatter on Reddit boards over the weekend, with excitement building about a potential profit rebound ahead following a tough holiday season for earnings. GameStop booked a loss for late fiscal 2021 despite soaring demand for video game consoles and other gaming hardware.
Now what
GameStop's stock is extremely risky and could easily see declines on par with the 70% spike investors have seen over the past few trading days. Management couldn't offer a 2022 sales outlook, after all, as the company is still in the early stages of its pivot toward e-commerce, non-fungible tokens, and blockchain gaming.
Without a clear sight toward how these initiatives will help GameStop return to steady sales growth and sustainable profitability, investors should be extremely careful when considering owning the stock in hopes of making quick profits. Sure, speculative bets might pay off in the short term, but you'll likely generate bigger returns (and sleep better) by owning a diverse mix of well-performing growth stocks.
