Reddit’s 5 Meme Stocks Ranked From Best to Worst According to Hedge Funds

2. GameStop Corp. (NYSE:GME)

Number of Hedge Fund Holders: 14

GameStop Corp. (NYSE:GME) is perhaps the most popular Reddit meme stock. It is a Texas-based specialty retailer that sells games and entertainment products through its e-commerce channels and stores in the United States, Canada, Australia, and Europe. On December 8, Wedbush analyst Michael Pachter lowered the firm’s price target on GameStop Corp. (NYSE:GME) to $5.30 from $6 and kept an Underperform rating on the shares, following the company’s failure to meet revenue and EPS expectations. The analyst claimed that GameStop Corp. (NYSE:GME)’s efforts to revive its business have not yielded positive results so far, as evidenced by the announcement of staff cuts later this year. Pachter noted that GameStop Corp. (NYSE:GME) is facing several short-term challenges, including poor NFT marketplace results, a decline in the overall NFT industry, hardware limitations, and cash burn. In the long run, GameStop Corp. (NYSE:GME) may also face liquidity problems and competition from a trend towards digital downloads throughout the industry, the analyst wrote in a research note. 

According to Insider Monkey’s fourth quarter database, 14 hedge funds were bullish on GameStop Corp. (NYSE:GME), compared to 13 funds in the last quarter. Mason Capital Management is a prominent stakeholder of the company, with 518,445 shares worth $21.3 million. 

Here is what Bireme Capital specifically said about GameStop Corp. (NYSE:GME) in its Q2 2022 investor letter:

“Amazingly, GameStop Corp. (NYSE:GME) is one of our only short positions to not fall in 2022. The stock trades at an $11.5b market cap, exceeding its pre-pandemic peak by billions of dollars. This is despite the fact that revenue is down 30% from the peak, gross margins are down 1500 bps, and the company has generated a negative free cash outflow of $700m in the last four quarters (we had to double check that number because it is so high).

Wall Street has consistently revised downward their estimates of Gamestop’s profitability, making its stock price stability in 2022 even more perplexing. Analysts currently estimate an EBITDA loss of around $400m, markedly worse than their estimates as of 2/3/22 of a loss of $60m. Their recently launched NFT marketplace will do nothing to fix their core business and comes about a year too late to be relevant in the NFT space. Instead, we see this as another example of a meme stock company hoping it can ape its way into a new business model, utilizing the popularity of the stock to drive new lines of business. We are not optimistic, and think the $11.5b market cap drastically overestimates the capability of Gamestop to pivot into something more profitable. We find it unlikely that Gamestop books a GAAP profit ever again.”