Free Trial

GameStop Will Rocket Higher: The Move Won’t Last 

GameStop sign

Key Points

  • GameStop sold shares, raised money, and diluted its stock by 15%. 
  • The news caused another meme-like rally, and more upsides could come.
  • The risk is that this market already shows resistance to higher prices and there is no fundamental reason to buy. 
  • 5 stocks we like better than GameStop

Shares of GameStop NYSE: GME are set up to rocket higher again, but the move won’t last because of why it is moving. GameStop announced a share sale that has increased its capital but diluted its value. The sale maxed out the shelf-offering filed only a week before, raising $933 million but diluting its stock by 15%. 

The Ugly Truth About GameStop’s Capital Raise

The purpose for GameStop’s new funds is listed as general corporate purposes or investing, either of which is a possibility and not all that great for investors. The company has improved its cash burn but is still bleeding. It may not return to full-year profitability as forecasted, so it needs to remain well-capitalized to fund operations. The cash injection nearly doubled the year-end balance and could sustain losses for the next decade. The question is how a decade of losses will impact the share price, and the answer is negative.

GameStop Today

GameStop Corp. stock logo
GMEGME 90-day performance
-0.42 (-1.44%)
(As of 06/14/2024 ET)
52-Week Range
P/E Ratio
Price Target

The other purpose, investing, is more interesting. The board approved new policies that allow the company to invest in stocks and for those investments to match CEO Ryan Cohen’s. This opens the door to many opportunities, including capital gain and income, as well as risks. 

CEO Ryan Cohen made a name for himself as an investor, but his two current holdings, GameStop and Bed Bath & Beyond, have performed poorly since his investment. BBBY shares are down nearly 100%, and GameStop's future is questionable; there’s no guarantee new investments will do any better. 

While a capital increase is good news for the business, it is still in terrible shape with no signs of improvement, and now there are more shares for investors to contend with. Now, the best traders can expect is another short-covering rally that will likely fail because there is no fundamental reason to own the stock. Technical resistance to higher prices is so significant that GameStop may be unable to sustain a higher price until there is a significant improvement in operations, which is unlikely to come soon. 

Don’t Buy Into RFK Jr Support for GameStop

RFK Jr gamed the GameStop market as surely as the meme traders when he threw in his support. The move is politically driven, meant to attract a meme-following, and has no bearing on operations. The $24,000 investment is only 0.35% of the market cap and intended as a launch pad for promotion - Mr. Kennedy pointed out the funds' source was profit from winning his case against Monsanto. Don’t count on his support moving the needle for GameStop or increasing the stock price. 

There has been some positive movement regarding analysts' sentiment, but even that will not support the price action. The single analyst with a rating remains Wedbush, which rates the stock as a Strong Sell and raised its target to $7 from $5.60, 75% below the current price action. This situation is unlikely to change and keeps serious investment money out of this peripheral tech market

GameStop Already Shows Signs of Resistance

GameStop could pop and even double in price due to another meme-induced rally, but there is a risk. The market already shows resistance at a critical level and may not move higher. In this scenario, the impact of the recapitalization effort is over, and the ceiling is already in place. The critical resistance is near $25, which has capped gains in the past. Assuming the market can move above $25, it could move as high as $65, but that is not expected. 

The next visible catalyst is the Q1 report, due in early June. The risk is that analysts continue to overestimate, setting the stage for significant underperformance. The analysts lowered their targets following the Q1 guidance update, but not low enough to align with management's forecast.

GameStop stock chart

Should you invest $1,000 in GameStop right now?

Before you consider GameStop, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and GameStop wasn't on the list.

While GameStop currently has a "Sell" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Beginners Guide To Retirement Stocks Cover

Click the link below and we'll send you MarketBeat's list of seven best retirement stocks and why they should be in your portfolio.

Get This Free Report
Thomas Hughes
About The Author

Thomas Hughes

Contributing Author

Technical and Fundamental Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
GameStop (GME)
1.2364 of 5 stars
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

Recent Videos

Will FOMC Push Stocks Higher? Here’s What to Expect
Unlock Growth: Understanding Dividend Yield
Palantir Stock Excluded from S&P 500: Still a Buy?

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines