What happened
While GameStop (GME 7.58%) has been in the news as a meme stock since that term was first coined more than a year ago, investors are piling into it Thursday for a different reason. The stock popped by more than 11% early in the trading session, and remained 9.2% higher as of 11:30 a.m. ET.
So what
The news driving the shares higher was management's announcement Wednesday that it would implement a 4-for-1 stock split after the close of trading on July 21. Once that takes effect, shareholders will have four times the number of shares they had prior. But the event won't change anything about the fundamentals of GameStop's business or the value of its shareholders' stakes in it. The new share price, after all, will be just one-fourth of the previous price.
Now what
Sometimes, a company's share price will rise after a stock split plan is announced because investors view the maneuvers as a sign of confidence from management. GameStop's announcement also follows recent split announcements from popular tech giants such as Tesla, Amazon, and Alphabet. Association with those moves is likely part of what has retail investors so excited about GameStop Thursday.
Those other companies, though, are all both thriving and profitable. GameStop is neither. The specialty retailer has been trying to reinvent itself as more of an e-commerce business, and is also establishing a non-fungible token (NFT) marketplace. But it continues to lose money. Last month, GameStop reported a net loss of $158 million for its fiscal first quarter, which ended April 30. That compared to a $67 million loss in the prior-year period as its costs increased more than revenue.
Investors should focus on companies' underlying businesses, and avoid getting caught up in the hype that follows stock split announcements. Those splits don't change anything real about the value of an investment.
