GME – Short Squeeze on a Company Destined to Fail

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Hi Slopers – Real life had kept me from blogging for a while, but this woke me out of the slumber.

Gamestop (GME) – for those of you who aren’t familiar, is a retailer that sells video games and video game accessories. That’s it. If Hank Hill sold technology, this would be his gig.

I’ve worked with retailers for 22 years. I know shoppers habbits and understand certain items almost always require a trip to the store – Apparel, Food and Jewelry are great examples of items that need to be seen /touched / tried on in person rather than over a computer screen.

Video games, gaming consoles and accessories don’t fall into this category. As we’ve seen from Best Buy, shoppers may go in to compare at or try out an electronic device, but then they go home and buy it offline from Amazon or ebay.

Another major trend going against GME long term is delivery method. Video games are headed towards a direct model where content will be downloaded, rather than purchased on media. The new Xbox platform will be the first to roll this out. Microsoft’s reason for this is simple. They want to sell XBox live subscriptions and they also want total control over content.

In other words they don’t want you selling your games on ebay or trading them when you get tired of them for credit towards new games. This also happens to be the most profitable piece of Gamestop’s business.

I’m not the only one who has thought GME is in a death spiral. 51% of the float is held short. GME announced today that same store sales we’re down 4.6% YOY and offered tepid sales guidance of flat to 8% down for the year.

And what happened after this announcement? It fell 6% pre-market then rallied to finish the day up 5.75% closing at a 52 week (and 3 yr) high.

GME

 

This Slopers, is the dreaded short squeeze. and it’s truly one that makes no sense at all. I’m absolutely sure GME is headed for the same dustbin as Blockbuster, but the real question is when?

Smart traders don’t call tops – so all we can do is wait for MACD to start rolling over or other signals to appear. If this happens with the price up – all the better. I have no position here – yet, but this is one to keep on your watch list

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