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GME stock's recent boost won't last and there's still plenty in play that will put more pressure on the stock
After falling to double-digit prices, GameStop (NYSE:GME) has held steady in recent days, thanks to progress with its move into the non-fungible token (NFT) space. This didn’t result in a “to the moon” move for GME stock, but it did help it find some support.
However, while finding support now, don’t assume a comeback is around the corner. Progress with one of its main catalysts may help it hold steady in the short-term, but there’s still more pointing to it moving lower from here. Mostly, next month’s earnings release.
Alongside this, the market has continued to move away from more speculative plays. There may be something else that helps boost, or at least supports, shares a few months from now. Even so, expect this to only delay, rather than prevent, its eventual price collapse. As the latest news fails to change the story, it remains best to stay away.
NFT progress has provided GameStop shares some support after their recent slide below $100 per share. First, due to speculation that it would launch its NFT marketplace sooner than expected. Then, as InvestorPlace’s Brenden Rearick reported on May 23, the company announced the launch of a crypto wallet to accompany its NFT trading platform.
Again, none of this is giving GME stock a real boost. If this were a few months ago, chances are these developments would be enough to result in a double-digit jolt higher. Yet, the market conditions necessary for this to happen are no longer there.
Rising fears of a recession, caused by the Federal Reserve’s move to raise interest rates in order to combat inflation, continues to put pressure on the market. This is clearly outweighing any perceived positives from GameStop’s NFT news. Even worse, more downward pressure may be in store for this stock, and not just from a broad market selloff.
June’s quarterly earnings report may be the next event that drives another move lower for shares. With the market no longer on its side, it’s unlikely investors will figure out a way to spin poor quarterly numbers into a reason to buy.
As seen in my last article on GME stock, I argued that there was a lot pointing to the company reporting poor results when results for its fiscal second quarter (Q2), which ends Apr. 30, come out next month. Namely, due to a post-pandemic slump in video game sales. This factor could result in wider-than-expected losses for the company.
In other words, results might not be too dissimilar to the disappointing numbers it reported back in March for its fiscal Q1. This time, though, GameStop doesn’t have on its side what enabled it to zoom higher post-earnings despite the underwhelming results: another meme wave.
You likely recall that, following its Q1 earnings report, GME actually made a “to the moon” move. This was chalked up to news of Chairman Ryan Cohen making an insider purchase, but it was likely the market’s belief that “rate hikes were priced-in” and that “risk-on is back” that fueled its short-lived late March parabolic run.
This time, few are making these arguments. Don’t expect the market to find a nugget of good news to justify buying it. Instead, investors are more likely to use bad news as an excuse to finally exit their positions.
GameStop’s fundamentals will play a larger role in future price movements in a bad way. Admittedly though, something unconnected to fundamentals may give it another short-lived burst down the road: its planned stock split.
Stock splits do not change the underlying value of a company. Even so, this could enable another rally for shares. Still, buying for this reason makes little sense. You may be able to profit from a time, if you time it right, but a split will only delay, not prevent, the inevitable: a drop in price for shares down to a level more in line with its fair value.
It may take months of slow and steady decline for this to finally happen, yet it’s a more likely outcome than this stock making a return back to its meme stock glory days. As the negatives outweigh the positives, the story hasn’t changed with GME stock.
On the date of publication, Thomas Niel 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.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.
Article printed from InvestorPlace Media, https://investorplace.com/2022/05/gme-stock-nft-progress-not-a-reason-to-buy/.
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