GameStop Inc. (NYSE 🙂 is America’s largest gaming retailer. Investors looking to make pandemic recovery plays in the last year had an interesting value proposition with GameStop’s emphasis on consumer electronics and video games. Many high-profile investors like Michael Burry jumped on board the value train, as this company traded at around $4 per share mid-2020.

This stock went absolutely parabolic during the meme stock rally that took place earlier in this year. GME stock shares trade at over $200 per share. This gives investors who own the stock since mid 2020 a 50-bagger. It’s quite remarkable.

There are questions over whether these stock valuations are justified. Does this company really have a valuation of $15 billion? Are the fundamentals of companies being overlooked by the market?

GameStop remains my favorite stock, despite its short-term potential for this stock to move higher.

(See GameStop stock charts on TipRanks)

Can the Rally in GME Stock Continue?

From the year 2020 through today, GameStop has maintained its underlying business model. Video game sales are on the rise as people have more time to watch TV and enjoy entertainment. That trend could continue for some more time.

The GameStop story is still based on the idea that bricks-and-mortar retailers like GameStop are able to withstand the assault of online shopping and in-game/in console purchases from the gaming giants. Investors wondered a while back if the company would be bankrupt.

Now, GameStop is able to use its stock price to help not only put an end to the survival debate but also to attract many more investors to the belief that the company could thrive. The stock price of a company is supposed reflect its market view about long-term prospects. This is not the case.

The dramatic rise of GameStop has drawn significant legal attention. Both the House Financial Services Committee (and the Justice Department) are investigating. A number of brokerages have also taken steps to limit trading in GME. Further, the SEC informed lawmakers on Tuesday that its report on the GameStop meme saga is ready, and will be out shortly.

We will see if the report contains any earth-shattering information. According to the majority of level-headed investors however, the GME stock rally is not sustainable and will end eventually.

Not Much From the Horse’s Mouth

Investors were looking for key insights on GameStop’s business strategies and growth plans during the company’s recent earnings call. Matt Furlong is not yet ready to reveal all of his secrets, but he appears to be open to suggestions. The conference call was only six-and-a-half minutes long, and revealed little beyond what was already available in GameStop’s earnings press release.

He did, however, highlight two areas of the company’s business plan which appear to be top priorities. GameStop’s unified leadership will be focused on scaling the company. While the company focuses on positioning itself to scale, it will also be looking at maintaining competitive pricing and growing its product offerings while improving its supply chains.

Furlong stated that GameStop will do everything possible to maximize shareholder returns. However, Furlong did not answer any questions from analysts. Investors have been left wondering, though this has not done much to change GME stock’s performance over the last week.

GameStop Earnings Strong, But Don’t Justify Valuation

Trading at around $200 per share at the time of writing, GME stock is simply overvalued.

The company beat Wall Street’s expectations regarding revenue. Revenue grew 25% over the previous year to $1.2billion for the second quarter. This is a positive sign for stock investors.

Also, net losses for the company have decreased from $1.71 per sharing to $0.85 per shared a year prior. This is due to the recent positive management changes GameStop has made in order to improve margins, and lower losses.

GME stock declined slightly following the release of its earnings. The investors wanted to know more about the ongoing transformation at GME. Investors remain bullish on GME stock despite not having much information.

Right now, it’s a market that’s open to speculation. GME is the stock that could be considered most risky, considering its current valuation. Long-term investors need to be cautious about putting their money into a company with high losses and strong secular headwinds in the future.

What does the GME stock analyst consensus say?

GameStop has a moderate sell rating according to TipRanks. From the four analyst ratings available, 1 hold recommendation is included and three sell recommendations are made.

GameStop stocks are currently valued at $120. An analyst can set price targets ranging from $50 to $190 per shares.

Bottom Line

GameStop could be the most overvalued stock in the universe right now. These stock levels are a huge risk for investors long term. Stocks like this have already fallen apart and are likely to rebound one day.

Investors may do better to stay off the fence with this stock.

Disclosure: Chris MacDonald had no position at the time this article was published.

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