We recently published a list of Jim Cramer Latest Portfolio: 10 Stocks to Watch in September. Since GameStop Corp (NYSE:GME) ranks 9th on the list, it deserves a deeper look.
Jim Cramer said during his latest program on CNBC that the Federal Reserve wanted to contain inflation and make sure it’s going in the “right direction” before initiating its first rate cut. With the first aggressive rate cut, Cramer believes “most businesses” can thrive.
Cramer, who is currently in Silicon Valley, said technology companies are, however, not “hostage” to the Fed and they are “automaters.” He said these companies are trying to raise margins by automating “what can be automated.”
Jim Cramer said currently cash is flowing towards companies that “would have been doomed” if the Fed didn’t start cutting rates. He said this was “day one” in many more rate cuts to come, which would create a “backdrop of positivity” for the broader market.
For this article, we chose 10 important stocks Jim Cramer talked about during his latest programs on CNBC. With each company we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Photo by Mohamed Hadji on Unsplash
GameStop Corp (NYSE:GME)
Number of Hedge Fund Investors: 12
Cramer said in a latest program that we should “stop pretending that anything real is going on at GameStop.”
Cramer highlighted the core problem haunting GameStop Corp (NYSE:GME): everyone can now download and buy games online, they don’t need to go to brick-and-mortar stores for that.
Cramer said the company no longer holds conference calls, not even the “sham” calls it used to hold in 2022.
“As I see it GameStop’s core business doesn’t matter anymore, what matters is fundraising – it’s very good at selling stock if not video games,” Cramer added.
GameStop Corp (NYSE:GME) troubles are indeed deep and wide. The gaming industry is forecast to grow from $183.9 billion in 2023 to $187.7 billion in 2024, driven by stronger console and software sales. Despite this, GameStop’s revenue is plunging.
The only bright spot in the company’s latest quarterly results was its earnings as the company turned profitable and crushed estimates. How did that happen? GameStop Corp (NYSE:GME) net interest income rose from $11.6 million last year to $39.5 million this year. This was mostly due to the rising cash balance the business has and higher interest rates. However, with interest rate cuts and almost all business segments seeing revenue declines, investors cannot count on this one-time earnings growth.
Revenue for the quarter came in at $798.3 million, a sharp 31.4% drop from the $1.16 billion posted the previous year, and fell short of analysts’ expectations by $105.7 million. The decline hit all segments of the business. Hardware and accessories revenue tumbled 24.4% to $451.2 million, down from $597 million. Software sales also took a significant hit, falling 47.7% to $207.7 million from $397 million the year prior. These sales cover new and pre-owned gaming software, digital content, and PC entertainment.
A few years ago, there had been optimism surrounding its collectibles business as a potential growth driver. However, even that segment is facing setbacks, with quarterly revenue from collectibles down 17.9% to $139.4 million, compared to $169.8 million a year earlier.
Overall, GameStop Corp (NYSE:GME) ranks 9th on Insider Monkey’s list titled Jim Cramer Latest Portfolio: 10 Stocks to Watch in September. While we acknowledge the potential of GameStop Corp (NYSE:GME), our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than GME but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.