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Is the GME share price set to fly higher than $250?

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·3-min read
Compass pointing towards 'best price'
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Investors who bought GameStop (NYSE: GME) shares in 2020 have reason to rejoice. The GME share price has multibagged this year, multiplying nearly 15-fold since the start of 2021. But if I found myself among those fortunate ones, would I be selling and pocketing my profits? Or do I think there are still big gains to be made if I bought now?

GameStop has attracted a huge ‘get rich quick’ following on places like Reddit. It shares that status with AMC Entertainment, and BlackBerry. And that immediately puts up a big red flag for me.

Why does the Reddit effect happen? After all, every similar stock-buying frenzy I can remember over my investing career of more than 30 years has collapsed. And everyone who bought in too late lost money. Will the same happen to the GME share price?

And why is it happening now? Stock markets are getting bullish, emerging from the pandemic crisis. I can see a psychological effect too, gripping some people enjoying their new freedoms as Covid restrictions are lifted. There isn’t just a desire to get back to investing in shares (which I’ve carried on doing all along anyway). No, I think the lengthy frustration has led to serious over-exuberance. Mix that with the ever-growing influence of social media, and there are bubbles just waiting to inflate… and go pop.

New management = big profits?

But what do fundamentals valuations say about the GME share price? It’s hard to work out any. The digital game company is now being driven by activist investor Ryan Cohen. He holds a 13% stake in the firm, and should become chairman in the next few days. Together with a new CEO and CFO, can the all-new management team turn GameStop back to profit? Oh yes, the company reported a loss last year.

Sure, it looks like that loss is contracting. In 2020, the company lost only $238m compared to $400m the previous year. But cost-cutting during the pandemic, plus the sale of hundreds of stores, made it an unusual year. Revenue, meanwhile, fell 22%. Oh, and GameStop issued new shares to the tune of $551m in April too. I suppose it’s good sense to make the most of a booming share price.

GME share price speculation

So what we’re looking at, as far as I can see, is a company in crisis. It has new management who might, or might not, be able to end the crisis and create something that justifies the multibagger GME share price performance. And then add some more for new investors.

To buy now, I’d have nothing but speculation to go on. I don’t even gamble on things with good odds. And based on my experience of past boom-and-bust bubbles, the odds are usually stacked against them.

I don’t think the GME share price will fly much above $250, no. At least, if it does in the short term, I doubt it will stay there for long. Perhaps new management will make good. Maybe a new partnership deal agreed with Microsoft will prove lucrative. And I might have missed the chance of getting rich quickly. I can live with that.

The post Is the GME share price set to fly higher than $250? appeared first on The Motley Fool UK.

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Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool’s board of directors. Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Microsoft. The Motley Fool UK has recommended BlackBerry. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2021