The GameStop (NYSE: GME) share price has been one of the most interesting stock markets stories of the past year. Shares in the company have whipsawed as a tug of war has developed between smaller investors and hedge funds on Wall Street.
However, recently, an uneasy peace has developed. Shares in the specialist computer gaming retailer have bobbed around the $200 per share market since March. Over the past 12 months, the stock has increased in value by around 4,800%.
But while the GameStop share price has taken on a mind of its own, the company has been working to transform its business model.
Moving online
Traditionally, the company has operated a brick-and-mortar-store-orientated business model. But it’s been investing more in online operations more recently.
GameStop announced it had taken a lease of a 530,000 sq ft fulfilment centre in Reno, Nevada, in its latest online expansion. This new facility will help the group expand its e-commerce operations across the west coast.
This expansion follows GameStop’s entry into a lease of a 700,000 sq ft facility in York, Pennsylvania.
The company’s share price performance has actually helped its transformation programme. As investors have clamoured to buy GameStop stock, the firm has raised $2bn by issuing new shares.
This has provided much-needed capital for the group to spend on its e-commerce business.
Interestingly, the rally in the GameStop share price has inspired a virtuous cycle. The company was struggling for funding before investors took notice of the business. As its valuation has increased, it’s been able to issue more shares and reinforce its balance sheet (AMC has been able to do the same).
With more capital to play with, the company has actually become a better investment, and its fundamental value has increased.
I think there’s now also a chance that if GameStop’s e-commerce drive starts to pay off, shares in the company could head even higher as the market reevaluates the business’s potential.
GameStop share price risks
Of course, the company’s success in this market is far from guaranteed. It’s going to have to take on larger, more established competitors.
Even with the GameStop share price at $200, I think it’s unlikely the company will be able to raise enough capital to compete effectively with its multi-trillion-dollar peers.
While I do think the company has potential, I won’t buy the shares today. Although GameStop’s growth efforts are starting to yield results, I’d rather wait and see how the firm’s transition evolves before buying.
I think it’ll encounter many challenges in the months and years ahead. It’s unclear how the business will be able to deal with these challenges.
As the company pushes ahead with its growth plans, I should be able to build a better picture of its long-term potential. That’s why I’m happy to sit on the sidelines for the time being.