Cohen Silent Treatment: Why GameStop Stock Investors Are Flying Blind

Stoppage of play (NYSE:GME) stock fades. Shares of the video game retailer lost nearly two-thirds of their value after the recent surge sparked by the return of Roaring Kitty to social media. Despite Keith Gill’s confidence in the company and its large shareholder base, investors are wondering about the right time to buy GameStop shares.

Although the video game retailer is 140% above the lows reached before meme stock trading resumed, the trading frenzy has subsided. Is having confidence in CEO Ryan Cohen’s ability to turn around the company enough to justify buying shares?

No clear vision

This is not a pretty picture for GameStop. Sales are falling, it’s still generating losses, and there’s no road map for growth. At least no Cohen will share with investors. Shareholders hoped the retailer’s annual meeting would shed light on the game plan, but they were left with more questions.

Cohen made only brief comments, took no questions from investors, and the meeting ended in 30 minutes. There’s a good reason why the stock subsequently fell. True believers like Gill may not care, thinking that Cohen has a clear idea, and that is enough. However, this is not a way to invest.

Such opacity leaves investors blind. GameStop’s stock may not trade on its operations (at least not during a large-scale stock market frenzy that drives the stock), but investors should have a view of where their company is headed. Unfortunately, that’s not the case for GameStop shareholders.

See what sticks

There is no reason to give Cohen the benefit of the doubt. Since GameStop’s takeover in 2021, several major projects have taken place that have only resulted in wasting scarce resources.

In no particular order, some of Cohen’s outlandish ideas for turning around GameStop included:

• Become an e-commerce giant to transform video game retail into the “Amazon of gaming.”
• Building two massive distribution centers with 2.4 million square feet of space to expand
• Expand into consumer electronics to sell Vizio (NYSE:VZIO) smart TVs and soundbars.
• Sale of Razor scooters in its stores and online.
• Launch of an online non-fungible token marketplace.

Net revenue was $5.3 billion in 2023, 12% less than what it generated in 2021. The company admittedly made a meager profit of $6.7 million. dollars last year, compared to the loss of $381 million three years ago, but it had to lose money again. Net losses were $32 million in the first quarter.

Perhaps Cohen’s greatest achievement is the money he raked in on the backs of investors during meme stock buying frenzies. The company had more than $1 billion in cash and short-term investments at the end of the first quarter, roughly equivalent to what it held at the end of 2021. It raised approximately Another $1 billion after the last hyperbolic trading session by further diluting shareholders.

Where there were fewer than 73 million shares outstanding three years ago, today there are more than 305 million, a fourfold increase.

The Bottom Line on GameStop Stock

Cohen has not earned the trust of GameStop investors. It’s not entirely his fault that his efforts failed. Turning around a brick-and-mortar retailer when your industry is in complete turmoil and transitioning to a new model isn’t easy.

But it also means that Roaring Kitty’s blind faith is not a model to emulate. Investors need guidance on where Cohen is taking them, but it’s not easy. Ultimately, fundamentals determine a company’s success and GameStop does not have a foundation to build on.

Investors should not buy GameStop stock unless and until it can show it has a strategy to follow and that it works.

As of the date of publication, Rich Duprey did not hold (neither directly nor indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com’s publishing guidelines.