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• GameStop's stock, known for meme-driven volatility, awaits its quarterly results on September 4th.
• Despite a $9 billion market cap, the company's outdated retail model faces challenges.
• A 10% same-store sales growth is needed for a turnaround, but current trends suggest this is unlikely.

As GameStop Corporation (GME) prepares to release its quarterly earnings on September 4th, investors are buzzing with anticipation.

Known for its dramatic meme stock surges, including notable short squeezes in May and June, GameStop’s stock has become a rollercoaster of speculation and volatility.

With earnings on the horizon, the big question is whether we should expect another bull run or if the stock will continue its recent trend of instability.

GameStop stock movements
 

GameStop’s stock price has often been influenced by factors unrelated to its fundamental or technical performance.

For instance, Keith Gill’s return in May led to a significant price surge, but enthusiasm waned after the subsequent quarterly report.

Currently, the stock hovers around the $20 mark as it awaits the next earnings release.

Valuation for GameStop
 

Assessing GameStop’s valuation is no simple task.

The meme stock rally began with the belief that the stock was undervalued, but while its price did increase, the underlying business hasn’t shown substantial improvement.

GameStop’s market capitalization is slightly over $9 billion, and it operates around 4,300 stores across North America, Europe, and Australia.

Despite its outdated business model of retail gaming equipment stores, the company still draws visitors.

However, high working capital requirements have led GameStop to raise $2.3 billion recently to maintain operations.

The company may eventually need to close more stores, retaining only the most profitable ones.

GameStop’s business model relies on a negative cash conversion cycle, where it collects money from customers before paying vendors.

Unlike competitors with lower overhead costs due to online operations, GameStop’s model struggles.

Since 2016, the company has reduced its store count by 40%, indicating a potential need for further closures in the future.

What GameStop needs for a turnaround
 

For GameStop to turn its business around, it would need to achieve a nearly 10% increase in same-store sales.

Given current consumer trends, this goal seems improbable.

CEO Ryan Cohen believes in the nostalgic appeal of physical game stores, but this sentiment appears to be fading as consumers increasingly prefer online shopping.

Shareholders might benefit more from focusing on changing consumer preferences rather than the CEO’s vision.

Investing in GME? Risks and rewards 
 

The potential downside for GameStop is significant, with some speculating that the stock could ultimately fall to zero.

However, shorting GameStop is fraught with negative publicity and is generally avoided by investors.

For many, the stock’s unpredictability is part of its allure, offering a thrill unmatched by other stocks.

While shorting is not advisable, there seems to be little incentive to buy the stock either.

As we approach the earnings report, the stock’s recent sideways movement may be a precursor to volatility.

Whether this will lead to a bull run or further instability remains to be seen.

Investors and market watchers will be closely monitoring GameStop’s performance in the coming week to gauge its next move.

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