GME share is still overvalued despite more positive catalysts
A number of new positive catalysts have been added to the mix to GameStop (NYSE:GME). However, despite the potential for a stimulus, the GME share remains extremely overvalued.
The biggest factor in the future of GameStop is by netflix (NASDAQ:NFLX) reports an entry into the video game industry. Many investors saw this as a negative development – stocks fell as low as 7.5%.
Other factors, such as a large pile of money, may come into play. However, GME stocks are also likely to be affected by a future downturn in memes stocks.
Still, it’s worth taking a look at the new business drivers that can potentially increase its shares.
Netflix’s move may expand the video game market
If you know my often opposing views, you won’t be surprised that I think GME stock could benefit from Netflix’s entry into the video game market.
I think such a move from Netflix could dramatically increase the popularity of video games. Right now, the genre has a fairly specialized audience – almost 60% of American gamers are 34 or younger.
By launching a video game platform, Netflix could inspire older Americans to start exploring the genre. Some might even become avid gamers and eventually increase GameStop sales.
In other words, just like from amazon (NASDAQ:AMZN) popularity has helped the stratospheric boom in e-commerce business of other companies, Netflix may stimulate interest in GameStop’s offerings. Consequently, the financial results of the company and the shares of GME would benefit from a significant improvement of this development.
Netflix and GameStop could become “enemies”
I won’t be surprised if Netflix partners with GameStop to promote their new video game service.
For those skeptics who believe that competitors can never be “enemies”, take a look at the mobile phone industry. By selling smartphones, retailers compete with telecommunications companies. But to provide cellular service to their customers, retailers must also partner with telecommunications companies.
For example, Best buy (NYSE:BBY), Walmart (NYSE:WMT) and other retailers are both competing and partnering with AT&T (NYSE: T), Verizon (NYSE:VZ) and T Mobile (NASDAQ:TMUS).
Additionally, Apple (NASDAQ:AAPL) advertises on the alphabet (NASDAQ:GOOG, NASDAQ:GOOGL) Google search engine even though Google’s Android phones compete with Apple iPhones.
And while Netflix has no plans to charge extra for its video game service, I do think it will ultimately force users to pay for it. And in this scenario, there are several avenues that Netflix could take to gain customers with a paid GameStop partnership.
GME Cash storage
In his article of July 19, Investor place Contributor Mark R. Hake reported that after raising $ 1.13 billion by selling GME shares, the retailer has $ 1.897 billion in cash before expenses.
I don’t agree with Hake’s conclusion that GameStop’s shares probably won’t go down much after raising this money. I do, however, agree with his belief that the retailer “is not going to waste away.”
In addition, this money will allow GameStop to create a first-class e-commerce operation and launch a very effective marketing campaign. It could make or break the company as it seeks to compete with other online game retailers.
Valuation and net result on the GME share
Best Buy is a highly profitable electronics retailer with a strong e-commerce business. On average, its sales in 2022 are expected to be around nine times that of GameStop. Yet even after the recent pullback in GME stock, GameStop’s market cap is almost 50% of Best Buy’s.
Plus, as I’ve pointed out in recent columns, memes shares are dropping and I don’t expect this trend to subside anytime soon.
Considering all of these points, I recommend investors to sell GME shares. Depending on the circumstances of the business, the stock market, and the economy, growth investors may be well served by purchasing a small number of stocks in the $ 50 to $ 70 range.
At the time of publication, Larry Ramer had (directly or indirectly) no position on the titles mentioned in this article.
Larry Ramer has researched and written articles on US equities for 13 years. He was employed by The Fly and Israel’s largest business newspaper, Globes. Larry began writing articles for InvestorPlace in 2015. Some of his highly successful contrarian picks include GE, Solar Stocks, and Snap. You can reach him on StockTwits at @larryramer.