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GAMESTOP – Insane market

I think that almost everyone in the investment or trading world has heard about short squeeze and gamma squeeze, which occurred at "Reddit" stocks such as GME, AMC, KOSS, BB, etc.

I think that almost everyone in the investment or trading world has heard about short squeeze and gamma squeeze, which occurred at "Reddit" stocks such as GME, AMC, KOSS, BB, etc. Gamestop is a company that is under no circumstances worthy of current valuations, and this Company has become the main target of speculators who have caused the collapse of a major hedge fund. However, something is not playing here...

Valuation madness

GME's revenue is declining year on year. It is entirely unrealistic for a company with $ 5-8 billion in revenue, negative profits, and especially no positive long-term outlook to have a market capitalization of $ 10 billion. A stock cannot be considered a growth stock or a value one.

GME revenue Source: Macrotrends

Although the Company earns money for its operations, it does not bring anything extra to its shareholders. Below we can see an overview of net profit (negative) for previous years. There is no bullish outlook insight.

GME net income Source: Macrotrends

Offering

GameStop Corp. (NYSE: GME) ("GameStop" or the "Company") today announced that it had completed its previously announced "at-the-market" equity offering program (the "ATM Offering"). On April 5, 2021, GameStop disclosed that it had filed a prospectus supplement with the U.S. Securities and Exchange Commission to offer and sell up to a maximum of 3,500,000 shares of its common stock from time to time through the ATM Offering. The Company ultimately sold 3,500,000 shares of common stock and generated aggregate gross proceeds before commissions and offering expenses of approximately $551,000,000.

Net proceeds will be used to continue accelerating GameStop's transformation and general corporate purposes and further strengthening the Company's balance sheet. Earlier this month, GameStop disclosed that it issued an irrevocable notice of redemption to redeem $216.4 million in the principal amount of its 10.0% Senior Notes due 2023 on April 30, 2021. This voluntary early redemption will cover the entire amount of the outstanding 10% Senior Notes, representing all of the Company's long-term debt.

For a normal company, a similar message is a very bearish sign, but clearly the opposite for GME.

Opportunity?

From this point of view, I would certainly not short the GME classically. A classic short via CFD can be very risky because if another short squeeze or gamma squeeze came, you would probably have a massive loss. However, in the medium term (2-3 months), we have significant doubts that GME can be maintained at these or higher market cap levels. Yes, the price can go up to a thousand USD because the second wave of mania may come. However, this would be an excellent opportunity for hedge funds and other entities to make money on retail from our perspective. Hedge Funds will certainly not classically shorten GMEs for two reasons (via CFDs). The first is that they would risk too much, and the profit would be relatively small. The second reason is that they can be disposed of as they have been in the past. For this reason, there could be a perfect opportunity to go through option spreads for 2-3 months, either through a bear call spread or a bear put spread. You know how to manage the risk, and the profit can be much higher than if you traded CFDs.

GME chart Source: Tradingview

Please note that the text above is for analytical and informational purposes only and not as investment advice.

WALFIR Technologies is one of the three divisions of WALFIR s.r.o., which is based in Slovakia. The primary interests of this division are analytical, quantitative, and algorithmic...

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