Is Gamestop worth investing in?

While having so many news flying around this popular stock “GameStop”, should you follow the trend by betting on this stock?

GameStop was once a selected stock under my stock portfolio while I first started investing in the US stock market. The company issued reasonably good dividend every year but the stock price was not high at all back then.

When I did the valuation few years back for this stock, the intrinsic value was about USD 30-40 based on one of the valuation models. You can see that the stock price never went past USD 50 until recently (see the 5 years stock price chart). Coupled with COVID-19, this company was struggling with its brick and mortar business. However, with the amateur US traders piled in, the stock went up 400% within a week.

There are more new traders joining in the game with the hope to profit using this stock. Most traders out there now are emotional. It can be seen by the big price movement of the stock (see the 5 days stock price chart). The price movement is more than 50% every single day!

I had message from my friend asking whether this stock is worth investing in. My answer is “We should know the company well before we invest. Most people who are trading don’t even know the company, they are purely speculating. Is such investment decision sustainable in long term?”

None of us in the world can predict where the market will go. It can go up another 100% tomorrow and down 200% in the next day. What we can be more certain is the company’s fundamental. This company is doing well in its sales during the pandemic period. When one company is not doing well in its sales, the company share price will eventually be going back to where it is worth. With saying this, should you short sell? With this kind of volatility, short selling is extremely dangerous. There are better investment opportunities out there, why bother to look at this stock when the rational thinking has been thrown out of the way. Avoid FOMO – Fear of Losing Out!

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