GameStop stock volatility has slipped: Beware of a GME short squeeze

GameStop (NYSE: GME) stock price has been a good investment in 2023. The shares have jumped by ~39% this year, outperforming the broad market since the S&P 500 and Nasdaq 100 indices rose by 15% and 38% this year. Despite the increase, the company’s shares have dropped by more than 80% from its pandemic high.

GameStop growth is slowing

GameStop has one of the best balance sheets in America’’s retail sector. The company has over $1.3 billion in cash and short-term investments and little debt. The recent results showed that it had just $23 million in long-term debt.

Further, the company is working hard to reduce its operating expenses since its business is slowing down. Total operating expenses in the last quarter dropped to $312 million. It had over $412 million in the previous quarter and $452 million in the same period in 2022.

The challenge for GameStop is that it operates in an industry that is in a downward spiral. While gaming is a big industry, most gamers are now using digital formats of playing and buying accessories. 

Companies like Sony, Nintendo, and Microsoft are selling most of their hardware online. Game developers like Activision Blizzard and EA Sports have also moved to digital formats. Therefore, demand for GameStop’s products and services will continue falling.

This trend is already happening. GameStop’s revenue came in at over $9 billion in 2015. It dropped to over $5.7 billion in the last financial year. At the same time, its profitability metrics have been a bit weak. The company moved from making a profit of $402 million in 2016 to make a loss of $205 million in the last financial year.

Therefore, it is hard to recommend investing in GameStop despite its solid balance sheet. It is in a declining business that has a difficult future ahead. At the same time, its attempts to move to the NFT industry seem to be faltering as demand has waned.

GME stock price forecast

GME chart by TradingView

GME has been a boring stock to invest in recently. It has remained between the support and resistance levels at $19.40 and $27.20. As a result, the shares are oscillating at the 25-day and 50-day moving averages. 

The shares volatility has continued slipping as the Average True Range (ATR) has been falling since April last year. Therefore, the outlook for the stock is neutral, with the key levels to watch being at $27.19 and $19.40. 

The only hope for GME is that it has solid credentials as a meme stock. As such, with volatility so low, there is a possibility that a short squeeze could happen in the coming days. Besides, the company still has a short interest of 20%.