2021 was the year that video game retailer GameStop (NYSE:GME) soared in value as retail investors bought up shares of the company, resulting in a short squeeze. Even though the business was struggling, its share price soared to a high of $120.75 on Jan. 28, 2021. Its daily volume was in the hundreds of millions as it became one of the hottest stocks to buy.
But as the hype eventually faded away, shares of GameStop have come crashing back down to reality. Investing $25,000 into the stock back then at a price of $100 would have give you 250 shares of the company. Today, at a price of around $20, that investment would only be worth $5,000, for a decline of 80%. Even if you invested at $50 a share, the investment would still be down 60%.
GameStop's business isn't in great shape as the company is losing money and it isn't growing. For the period ending April 29, sales of $1.2 billion were down 10% year over year. There isn't a great reason to buy the stock and with investors becoming more selective amid the recent downturn in the markets, meme stocks have fallen significantly.
A big risk with investing in a highly volatile stock for speculative purposes is that as quickly as things go up, they can just as quickly go down. At nearly five times book value, GameStop still is arguably a bit expensive and can still go lower. Until the company's fundamentals improve and GameStop can show that it has a way to grow, investors are better off avoiding the stock.
