by Staff Reports Money Morning, Money Morning
— this post authored by Andrew Keene
Before GameStop Corp. (NYSE: GME) exploded onto the market’s “main stage” in January, it was a struggling brick-and-mortar video game retailer, years past its prime. Its shares floated along in the sub-$10 range for months.
The stock was catnip for short-sellers, who made out pretty well… until a group of investors from WallStreetBets generated serious volume and bid the stock up several thousand percent to take the shorts to the mat.
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Now, GameStop was significant because it showed regular investors what Wall Street insiders have known since, well, forever: Short “Super Squeeze” scenarios like the ones I research constantly for my subscribers can potentially be insanely profitable.
But it also seems to have been a wake-up call for GameStop’s head honchos. A timely boardroom arrival seized on the attention – and all the capital it brought along – as a fighting chance to turn the company around, back into a retail leader in the $60 billion U.S. video game industry.
And you know what? I think it’s going to work, and I’ll show you why in a second. There’s potential here as GameStop becomes a stock well worth owning again. If this plays out the way I think it will, this company could, in certain places, give Amazon.com Inc. (NASDAQ: AMZN) a run for its money.
Let me run you through what’s happening there at GameStop and tell you exactly how to play it.
While the Media Circus Was Happening…
There were 10 days or so back in January and February when you couldn’t go online or turn on your television without hearing about GameStop and the “meme stocks” that Internet-savvy, app-based retail investors were piling into for triple- and quadruple-digit “Super Squeeze” profits.
We didn’t hear much from GameStop management, but that doesn’t mean they were asleep; at the peak of the frenzy, there was some extensive executive shakeup underway.
Ryan Cohen, founder and former CEO of smash-hit online pet food retailer Chewy Inc. (NYSE: CHWY), was brought onto the board, where he’s been given wide latitude to make the changes he knows can turn GameStop around. Not much has been said about this, but by all appearances, it looks like Cohen’s arrival was taken as a “Go!” signal – an extremely bullish catalyst – by many of WallStreetBets’ Redditor-investors; he’s got fans, and they’re a big part of the reason for GME shares’ rocket ride. Before the squeeze, Cohen bought a 12% stake in the company, too.
Cohen is putting his money where his mouth is, publicly stating that he wants to make GameStop the “Amazon of videogames.” He wants GameStop to compete at the same level as Amazon, Microsoft Corp. (NASDAQ: MSFT), and Target Corp. (NYSE: TGT).
Two execs have been shown the door, the chief customer officer and chief financial officer.
To move the ball forward, GameStop has hired a 20-year veteran, Elliott Wilke, as “Chief Growth Officer.” Willke comes up from – no surprise here – Amazon’s Fresh Stores division. And earlier in February, GameStop hired another Amazon insider, Matt Francis, as “Chief Technology Officer.” Francis was heavily involved in Amazon’s huge Amazon Web Services (AWS) Internet backbone profit-machine.
Cohen, who’s practically the CEO at this point, has hired seven other executives from Amazon and his old outfit, Chewy. Two former Chewy insiders will take over branding and merchandising and, if you know Chewy, you know they’re the masters.
Cohen is putting together a team that looks like it’s ready for the Super Bowl of online retail. With Cohen looking to compete in the same league as Amazon and Target… that’s exactly what this is.
It sure looks like Cohen and the GameStop board are confident they’ll be able to Amazon-ify the company, trim down its cumbersome, unprofitable brick-and-mortar presence and turn it into a streaming videogame powerhouse. GameStop missed that boat several years ago, and largely passed on establishing an online retail presence, but clearly there’s massive upside potential there – remember, this is a $60 billion sector.
All GameStop needs to do is align itself with its customers’ online spending habits, and the revenue will come.
Look, the “smoke” has cleared. The GameStop drama of this past winter is basically over. Believe me: Hedge funds and speculators have long since found other shorts – we’re looking at the “other side” of those to target some of those potentially explosive short squeeze plays in Super Squeeze Profits.
I think what we’ve got here is a chance to own a mini-Amazon for less than 200 bucks.
“GameStop the Growth Stock”
The change is already coming on strong, in fact, as Ryan Cohen is making his presence felt. This past Monday, we heard that GameStop’s 2021 sales to date have increased 11%, year over year. Revenue for the five-week period that just ended was up more than 18% from the same stretch in 2020. Critically, its digital sales – where the company wants to be strong – have increased 175%.
Dying, bankrupt businesses don’t have double- and triple-digit increases on the top line.
GameStop is now (finally) looking to capitalize on the incredible attention it’s received from Wall Street – and the buckets of cash it’s received from its investor-fans. The now $13 billion company is planning to raise around $1 billion in additional cash from the sale of new stock.
Ordinarily, that would be dilutive, and, in the short term, it may be – slightly – but that capital is going to allow Cohen and the rest of the GameStop board to put what looks like a winning turnaround plan into action – primarily massive streaming capacity, but also licensing, and some other capital-intensive ideas. The sale should help shore up the company’s fundamentals, stabilize its valuation, and basically pave the way for more upside.
If GameStop had done this five years ago, we’d probably be talking about a $1,300 stock right now. That said, GameStop has a unique opportunity here – it’s not too late at all.
I’m still not crazy about trading this stock right now, though some portion of your speculative capital could be used to put on long trades like calls here. Instead, I like the idea of building a GameStop position and adding to it on any pullbacks you might find – there could very well be some. Just talk it over with your financial advisor, and use sensible position sizing and stops.
Like I said before, GameStop is leveraging its “meme stock” status to move beyond the short-squeeze craze and carve out what looks like a bright future.
But that doesn’t mean the “Super Squeeze” trade is dead – in my opinion, it’s actually become the market’s hottest trade.
Hedge funds and speculators are still out there selling stocks short, but they’ve moved on to less well-known targets. It’s still possible for regular investors to take the “other side” of the trade, just like retail investors did in January, and wait for serious short-squeeze potential to unfold. That’s just what my subscribers are getting the chance to do right now.
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