Why I still think GameStop is a trap

This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:

Sometimes there is no middle ground in the cutthroat world of business.

You are either a winner.

Or you are a loser.

A winner wins because they are doing something better than everyone else, usually over a long stretch of time. Through a mixture of perseverance, creativity, and executional excellence, the winner builds on their success and widens their lead.

There is a dose of luck to this too.

A loser, well, does the complete opposite of this playbook.

I return with this simple message following another wild week of trading in shares of GameStop (GME) — one dominated by an unverified social media account allegedly led by a guy known for a red headband, lame T-shirts, and a penchant for flexing his alleged dollars in a trading account.

GameStop stinks. It’s 100% going to be a long-term loser. Maybe 110%.

And you know what, friends?

To reiterate this point, I’m not going to use a lick of the sophisticated analysis I taught myself while covering 55 retail companies as an independent stock analyst. I will do two things.

First, point out that the company’s first quarter sales cratered 29% year over year. The company lost $32.3 million in the quarter compared to a loss of $50.5 million a year earlier.

The business trends are getting WORSE!

Here are those numbers via the company’s laughably brief earnings release Friday morning.

Second, I’m going to link to the company’s latest annual report here, then add these rapid-fire observations:

1. The company refuses to aggressively shrink a store base that numbers 4,169 locations worldwide. Shops that sell similar products such as Walmart (WMT) are aggressively investing in AI and same-day delivery services — practically making visits to competing stores a waste of time.

2. The company is losing gobs of money amid a persistent, structural downtrend in sales.

3. Margins are under pressure, and have been.

4. The company is overly reliant on consoles — 56.8% of sales came from hardware and accessories last year. But console sales face an increasingly grim outlook as PCs and smartphones compete for market share.

5. The three objectives listed under the “business strategy” section — establish retail excellence, achieve profitability, and leverage brand value — aren’t being consistently executed on.

You GME fans may not want to admit this, but fundamentally analyzing a company still matters. That’s how the mechanisms of the market work. That’s how true wealth is built.

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“You can never lose sight of the fundamentals,” Interactive Brokers chief strategist Steve Sosnick said on my “Opening Bid” podcast (video above), adding that GameStop’s top and bottom lines will likely stay under pressure.

It’s why this stock has gone from a high of $66 when “activist investor” turned CEO Ryan Cohen joined the board in January 2021 to a low of $9.95 in mid-April, before the latest bout of Keith Gill shenanigans. Shares closed at $28.22 on Friday.

Cohen has done squat to reverse the company’s future trajectory. In the meantime, the performance of the company has been terrible. I stand by everything I wrote in my open letter to Cohen on June 9, 2023, when the stock was trading at $23.

In fact, I’ll take this a step further — I personally invite Cohen to Yahoo Finance’s big fall Invest conference (distinguished speaker list from 2023 here) to debate me on the main stage about what in the world he is doing with GameStop.

Ryan, the event is Nov. 12 in New York City. My email is below.

You owe it to your legion of supporters to discuss what you are doing with their public support and dollars.

And don’t message me that Cohen has saved the company with its recent $933.4 million cash grab via a share offering and another 75 million planned offering disclosed on Friday. All this does is ensure the company could keep buying inventory for a few years while also exiting a plethora of leases for stores that most of America doesn’t visit.

What does winning look like in the consumer space? Check out these links:

You want to debate me on GameStop today?

I am waving you into the octagon on X — I’ll be here all day @BrianSozzi answering your messages. Any inappropriate message and I will block your account. I want to hear your honest analysis on this company and why you love it.

In the meantime, enjoy reading GameStop’s 10-K.

Still can’t get enough GameStop? Here’s what noted value investor Jonathan Boyar had to say about the company on “Opening Bid“.

Brian Sozzi is Yahoo Finance’s Executive Editor. He is also the host of the “Opening Bid” podcast. Follow Sozzi on Twitter/X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email [email protected]. Are you a CEO and want to come on Yahoo Finance Live? Email Brian Sozzi.

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