GameStop (GME) stock price has moved sideways in the past few months as investors assess its slow business trajectory and its strong balance sheet. GME was trading at $29.8, where it has been in the past few weeks. This price is about 202% higher than the year-to-date low. So, what should GameStop do to boost its stock?
GameStop is in a difficult position
Gamestop, a leading American gaming retailer, is between a rock and a hard place. On the one hand, its business is slowing down, and is on the verge of collapse in the next few years. Besides, many gaming customers no longer buy products in physical stores, a trend that will continue in the coming years.
This trend is evident in its income statement. Annual revenue has moved from $6.4 billion in 2019 to $5.27 billion in the last financial year. The most recent numbers showed that its third-quarter revenues dropped to $860 million from $1.078 billion in the same quarter last year.
Analysts believe that this trajectory will continue. Current quarter revenues are expected to be $1.48 billion, down by 18% YoY. Also, its annual revenue will be $4 billion, followed by $3.78 billion in the next financial year. Therefore, there is no model that predicts that the company’s revenues will be higher in the future.
GameStop is also struggling with profitability. It made a $6.7 million profit in the last financial year and $63 million in the trailing twelve months. Before that, the company lost over $1 billion in the previous four years.
On the positive side, GameStop has one of the best balance sheets in the retail industry. It ended the last quarter with over $4.5 billion in cash and short-term investments, up from $909 million in October last year.
It also had $32.8 million in marketable securities, $57 million in receivables, and $830 million in inventories, bringing its total current assets to over $5.6 billion. It has limited debt, with its long-term debt standing at just $9.6 million. The company can easily clear the debt using its cash balances.
Read more: GameStop’s troubling management decisions: why shareholders should be concerned
GME needs to transform, and MicroStrategy offers a roadmap
GameStop should transform its business to succeed. Jim Cramer has suggested that the company should become a bank.
One solution the company should consider is using the MicroStrategy model and becoming a Bitcoin holding company.
See, MicroStrategy was in a similar position a few years ago as its software business struggled. At the time, it had a market cap of about $1 billion. In the past few years, the company has borrowed heavily and become the biggest corporate holder of Bitcoin in the world.
MSTR holds over 439,000 coins worth over $43 billion, while the company has a valuation of over $80 billion. It has also successfully joined the NASDAQ 100.
GameStop can decide to use the same approach and accumulate Bitcoin. Fortunately, it has a cash hoard of over $4 billion that it can use to do that. Also, it is in a better situation than MicroStrategy to borrow money and buy Bitcoin.
History suggests that Bitcoin will keep rising despite the recent volatility. Remember, Bitcoin often rallies and then suffers deep corrections. It has done that in the past 15 years. It also has strong fundamentals as its supply is quickly running out.
GameStop has made attempts in the crypto industry before. Its initial approach was to invest in an NFT or collectible marketplace, a venture that failed.
By investing in Bitcoin, GameStop would join other popular companies that have made a fortune in the industry. This includes firms like Coinbase, Block, and Tesla.
GameStop stock price analysis
On the daily chart, we see that the GME stock has formed an ascending channel in the past few months. This channel formed after it crashed hard following its May surge. It is part of the formation of a bearish flag chart pattern.
GameStop stock has also formed a small double-top chart pattern, a popular risky sign. Therefore, there is a risk that it will have a bearish breakout in the coming weeks. If this happens, GME stock will drop to $23, the lower side of the ascending channel.
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