It’s true. I don’t understand GameStop (NYSE:GME) stock or its followers. I say that because I recently received an angry inbox message claiming I didn’t do my homework in regard to GameStop.
Well, I did. I mean, I looked at the company from a fundamental perspective. What I saw didn’t look appealing. There still remains no fundamental case for investing in GameStop right now.
That angry message was from one of the company’s fanboys: likely one of Reddit’s r/WallStreetBets backers who adamantly seem to believe in a turnaround. But, as just about any dispassionate analyst can see, that isn’t materializing.
Numbers and Lies
It’s true, you can use numbers to tell any narrative you want. Give GameStop’s most recent earnings report to a GME stock fan and they might point to its revenues. After all, GameStop’s revenues increased from $1.004 billion in in the third quarter of 2020 to $1.296 billion in the third quarter of 2021.
A 29% top line increase ought to send GME to the moon, as they say. It didn’t in this case as share prices actually declined on Dec. 8 when the news was released, but that should’ve been a fans argument. Give that same earnings report to my hypothetical dispassionate analyst and they’ll probably point to something else.
That something else is losses. The other truth, aside from increasing revenues, is increasing losses. GameStop recorded a $105.4 million net loss in the third quarter. That’s much greater – 5.6x greater – than the $18.8 million the company lost in Q3 a year earlier. It is really just a continuation of the same old story.
The Power of Community
One of the underlying narratives related to GME stock is solidarity. Retail traders at r/WallStreetBets, when allied together, has all the might to overcome Wall Street itself.
It was a really interesting story. I absolutely give credit to those GME fans for what they did. But it also shows what happens when one is overinvested in something: You become blinded to the greater reality.
Most agree that GameStop isn’t undergoing a turnaround. From a fundamental perspective, increasing losses aren’t indicative of that. And despite GameStop fanaticism, there are real hard factors they can’t ignore.
Economics Still Affect Meme Stocks
It may not seem like it, but even meme stock pundits are affected by economic reality. A recent Barron’s report shows as much. The import of the article was that fears over a quicker-than-expected tapering of easy-money policies affects even meme stock traders.
The release of the Federal Reserve’s December policy minutes led some to believe easy-money tapering will occur sooner than previously thought. This led traders out of speculative assets including meme stocks like GameStop.
The news also affected more speculative cryptocurrencies which rely on crowd enthusiasm to bolster their prices.
The takeaway is fairly straightforward: At some point, the collective will always fades due to immutable laws. I am not suggesting that GME is done at this point. Rather, I’m simply saying that reality does set in sooner or later.
GameStop fans will experience this again and again. It was Fed signals that precipitated negative movement this time. It’ll be something tangible again in the future. Slowly but surely the fans will drop off little by little.
What to Do With GME Stock
That’s why I suggest getting out now if you’ve made money. If your position is currently a losing one, there’s hope. GME is volatile. It could definitely rise again and cover your losses. Then get out.
But 2022 isn’t going to be 2021 all over again. There are some real consequences coming down the pike. To expect that GME stock will rise to $300 or $400 again seems incredibly unlikely. An end will come just as almost everyone expects.
Don’t be on the wrong side of that conclusion.
On the date of publication, Alex Sirois did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.