GameStop (NYSE:GME) officially split its shares last week. However, that didn't help provide any boost
to the stock as it finished in the red on the day. While news of stock splits can sometimes generate
excitement around a stock and help it rally, the changes are purely aesthetic.
A company's financials don't improve due to a stock split, it simply means investors now own more
shares at a different price. If you had a $1,000 investment in the stock, it's still a $1,000 investment after
the split. The only change is the number of shares and the stock price. Companies may deploy the move
to drum up some excitement.
It may be that for a high-priced stock like Amazon (NASDAQ:AMZN), a split makes its shares more
accessible to investors – particularly, ones who can't buy fractional shares through their brokerages. But
besides that, a stock split shouldn't have any meaningful effect on share performance.
GameStop is still an unprofitable company that faces a tough road ahead. Its gross margins of 22% are
minimal and make it difficult to stay out of the red as its selling, general, and administrative expenses
last quarter totaled $452 million and were 51% more than its gross profit. Even the 8% sales growth the
company reported doesn't look overly impressive for growth-oriented investors.
The video game retailer has also been focusing on chasing crypto hype around NFTs, which could make
this already risky stock an even riskier buy.
GameStop wasn't a good buy before its stock split, and it isn't one now.
