The GameStop (NYSE: GME) share price has surged by nearly 5,500% over the past 12 months. Investors and traders have piled into the stock as it’s continued to push higher.
What started as an online phenomenon has grown into something bigger. Investors and traders from all walks of life are trying to capitalise on what’s become one of the most talked-about companies on the New York Stock Exchange.
Unfortunately, the company’s fundamentals haven’t matched up to its staggering share price performance so far.
GameStop (GME) share price fundamentalsÂ
In its 2021 financial year, the organisation reported revenues of $5.1bn and a loss of $215m.
Before the recent rally, the GameStop (GME) share price had been under pressure for years. The company, which owned a large brick-and-mortar retail estate, was struggling to compete with online peers.
However, last year was a bit of a watershed for the group. As the pandemic raged around the world and the company’s stores suffered yet more disruption, management took a decisive step to move more business online.
It’s taken several other steps to become more forward-thinking. It’s hired several new executives including Amazon.com executive Elliott Wilke as chief growth officer and Ryan Cohen, the entrepreneur who built Chewy.com into a pet supply giant and sold it for more than $3bn.Â
In addition, rumours suggest Cohen will bring in e-commerce experts with the goal of transforming GameStop into a retailer fit for the 21st century.
As well as these initiatives, the GameStop share price received a boost when it emerged that the company was looking to branch into the worlds of non-fungible tokens (NFTs) and cryptocurrencies.
Even though some analysts believe the recent rally in GameStop shares is nothing but speculation, I can see a scenario where the stock continues to move higher.
Undervalued?Â
At the time of writing, it’s trading at a price-to-sales (P/S) multiple of 4. Online retailer Etsy, which has a similar market capitalisation, is trading at a P/S ratio of 10. As such, the GameStop (GME) share price looks cheap.
That said, this is only a rough estimate of value. There’s no guarantee GameStop will be able to execute a pivot to online retail successfully.
Etsy is already a well-established online retailer with a global presence. GameStop doesn’t have the same recognition among consumers around the world. It may never achieve it. It could be many years before the company’s turnaround even starts to take shape.
Therefore, this corporation seems highly speculative to me. If it does manage to execute on its ambitions to become the Amazon of gaming, the stock could be cheap at current levels, and it could keep rising. But if it doesn’t, it looks expensive.
With so much uncertainty ahead, I wouldn’t buy the company for my portfolio, despite its best-case-scenario potential.