If there’s any existing company that could be politely described as a “legacy business,” it would be GameStop (NYSE:GME). With the novel coronavirus pandemic causing people to download or stream games instead of visiting stores in person, it’s hard to envision a strong value proposition for GME stock today.
On the other hand, value has seemingly become irrelevant in today’s financial markets. The balance of momentum/growth stocks versus value stocks has gotten out of whack.
In 2021, GME stock has become emblematic of the stock market’s buy high, sell higher credo. To me, it’s like a game of musical chairs and the music has already stopped.
Yet, we really shouldn’t treat GME stock like it’s a game at all. This isn’t Call of Duty or even Monopoly. Actually, it’s a reality check that every investor needs to hear before it’s too late.
A Closer Look at GME Stock
Call it the “slope of hope” or a “pop and drop” if you’d like. It’s the old Eiffel Tower pattern in GME stock, with a steep rise and an equally steep, inevitable decline in the share price.
A year ago, GME stock was trading at around $4. Starting in the summer of 2020, the share price gradually but relentlessly worked its way upward. By the end of the year, the GME share price had broken above $18.
You’d think that would be enough gains for the bulls, right? But as we now know in hindsight, there was much more to come.
Thus, in late January a buying frenzy allegedly spurred by the Reddit group r/WallStreetBets propelled GME stock to a dizzying 52-week high of $483.
I’ll give you another cliche in the financial markets now: price chasers get punished. This cliche turned out to be true, as GME stock tumbled from its peak almost as quickly as it had ascended.
Purpose Served, Time to Move On
As of Feb. 19, GME stock was trading at $40 and change. So, are there any lessons to learn here? And, should investors buy GME shares now?
First off, I would assert that buy low, sell high simply doesn’t apply here. Sure, GME stock is lower than its near-$500 peak. Yet, this doesn’t mean that the stock is a bargain, by any means.