GameStop (NYSE:GME) the stock experienced extreme volatility on Thursday after the company released its second quarter results. GameStop’s revenue and revenue numbers were, as you might expect, terrible. The story GameStop management told when calling the results was predictably bullish. Everything in the earnings report was normal, which is probably why the stock closed the next day up less than 0.4%.
In a nutshell, earnings don’t matter for story stocks like GME stock. There are hardly any numbers GameStop could have reported that would justify a market cap of $ 14.3 billion. Here’s a look at what matters and doesn’t matter about GameStop’s Q2 numbers.
Gains don’t matter for GME stock
Perhaps the GME stock bulls were happy with the second quarter report. Maybe they weren’t. Either way, you can rest assured that GameStop’s earnings didn’t matter when it came to the share price.
GameStop reported an adjusted second quarter loss of 76 cents per share, missing consensus analysts’ estimates of a loss of 67 cents. Revenue for the quarter was $ 1.18 billion, beating analysts’ expectations of $ 1.12 billion. Sales were down 7.8% compared to two years ago.
I compare the numbers from 2021 to 2019 because they are pre-pandemic numbers. Pointing out that revenues have increased 25% from where they were in the midst of a pandemic economic shutdown is not a useful measure of a business’s performance.
But the whole point of this story is that all of the numbers that GameStop reported this week are essentially meaningless when it comes to GME stocks.
GameStop Recovery Thesis
The GME action is a cult action. Its activity does not matter for the course of its action as long as it remains an action even. The chart below tells you everything you need to know about why earnings and income don’t matter to the GME stock. Can you spot the point in the chart at which the GME stock became a meme instead of a typical retail stock?
I’ve written before about how GME’s stock is valued ridiculously higher than retailers like Best buy (NYSE:BBY) who have successful businesses. GameStop’s annual revenue peaked in 2012. But again, those numbers don’t really matter. GME stock is up 950% in 2021 because of a story, not because of a company.
There are two theses of GME stock bulls. The first thesis is the typical story stock narrative. Yes, GameStop’s revenue peaked in 2012. Yes, its revenue was down in 2019 even before the pandemic. But the narrative of GameStop’s history is that the company is moving from a physical retailer in secular decline to a high growth market. technological actions.
Like I said before, every penny stock out there has a story of how investors should ignore what it really is and instead imagine how great it could be in the future. Don’t worry about the numbers. Believe the story. In this regard, GameStop isn’t particularly special.
GameStop Conspiracy Theory Thesis
The other bullish thesis of GME action is that there is an anti-action conspiracy involving short sellers, hedge funds, regulators and even yours truly and other journalists. This theory is that hedge funds illegally short sell GME shares and reimburse regulators and journalists like me.
I hate having to do this. But from the feedback I have received, it is clear that at least a small portion of GME equity investors need it. The definition of a plot is: “a malicious, illegal, perfidious or surreptitious plan formulated in secret by two or more persons”. So the GME stock conspiracy theory is that hedge funds are paying me and paying regulators and other journalists to look the other way while they illegally sell stocks.
For the record, I was never even approached by a hedge fund to write a story. None of my editors pressured me in any way. But conspiracy theorists probably won’t care what I have to say because they believe I’m a co-conspirator.
How to play GME Stock
If you want to bet on a meme stock, have fun with the GME stock. It is at least as likely to rise as it is to fall in the short term. Don’t pretend it’s something it isn’t. It is not a good investment. Maybe one day it will turn into an investable business, which is not in secular decline. But even at this point, it will likely take a decade of growth to justify its current market cap of $ 14.3 billion.
I feel like the vast majority of GME equity investors know what’s going on. They play and have fun on social media, and that’s great. That’s the beauty of a free market, and I’ve made a killing in the past trading penny stocks. Don’t confuse GME stocks with a good long-term investment. And don’t pretend GameStop revenue matters.
At the date of publication, Wayne Duggan did not hold (directly or indirectly) any position in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to the publication guidelines of InvestorPlace.com.
Wayne Duggan has been contributing to US News & World Report Investing since 2016 and is an editor at Benzinga, where he wrote over 7,000 articles. Mr. Duggan is the author of the book “Beat Wall Street with common sense” which focuses on the psychology of investing and practical strategies for outperforming the stock market.