“The meme-frenzy distracted from business fundamentals, but becoming competitive again will be no easy task,” New Constructs CEO David Trainer said after the research firm added $GME to its list of “zombie stocks.”
Meme stock GameStop has been on a wild ride in the last couple of years, but cash burn and lack of profitability loom large over the video game retailer.
Like AMC Entertainment Holdings Inc. AMC, -0.30%, GameStop is a meme stock darling. Earlier this year GameStop rocketed to its longest win streak in over a decade, boosted in part by a bullish post on the WallStreetBets subreddit. “GameStop was a struggling brick-and-mortar retailer before it entered the meme-stock stratosphere,” he said. “The meme-frenzy distracted from business fundamentals, but becoming competitive again will be no easy task.”
GameStop ended its most recent quarter with cash and equivalents of $908.9 million. The company also said it ended the quarter with no debt other than a low-interest loan related to the French government’s response to the pandemic. Set against this backdrop, Trainer isn’t confident of GameStop’s chances of exiting the list of zombie stocks. “It is unlikely that the company will ever make enough money to satisfy stakeholders with higher claims on the company’s cash flows than common equity shareholders,” he said. “Not surprisingly, GME has an economic book value, or no growth value, of -$19/share.”
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