Stock Market

Meme-stock traders used to obsess over video game retailer GameStop (NYSE:GME). Those days are in the rearview mirror now, though, and serious investors should pay attention to GameStop’s problems. Furthermore, just because a well-known insider took a large stake in GME stock, this doesn’t mean you have to follow his lead.

As you may have heard, GameStop’s 2021 short squeeze is actually being made into a movie. Apparently, that movie will be titled Dumb Money.

Now, I’m not going to insult GameStop’s investors’ intelligence. After all, the term “dumb money” is too harsh. However, I would encourage eager traders to take an honest look at GameStop. In the final analysis, sensible investors need to shelve their short-squeeze ambitions and leave GME stock alone.

An Insider Buys $10 Million Worth of GME Stock

I would never dismiss the importance of tracking insider purchases. However, traders shouldn’t overestimate their significance. To support my point, I’ll give you an example right now.

As InvestorPlace Assistant News Writer Eddie Pan previously reported, GameStop Director Larry Cheng bought 5,000 shares of GME stock through Cheng Capital LLC on March 29. Moreover, Cheng purchased those shares at an average price of $22.79 per share. A month later, the stock traded below $20. Today, it’s slightly above Cheng’s purchase price.

So, don’t assume that a huge share-price rally is imminent just because a corporate insider bought a stock. In any case, GameStop Executive Chairman Ryan Cohen reportedly purchased 443,842 shares of the company on June 9 through RC Ventures LLC for around $10 million.

GameStop Still Isn’t a High-Confidence Pick

Cohen’s share position in GameStop is notable, but it shouldn’t be enough to persuade you to buy GME stock now. Short squeezes aren’t predictable events, and as a business venture, GameStop has serious problems.

What bothers me the most is GameStop’s executive turnover rate. As Jefferies analyst Andrew Uerkwitz pointed out, GameStop has had “has had 5 CEOs and 3 CFOs” during the past five years.

It also irked me when GameStop’s management canceled the company’s first-quarter 2023 post-earnings conference call. That’s not a good sign, especially for discerning investors who wanted to hear what GameStop’s management had to say about the company’s quarterly performance.

Speaking of GameStop’s quarterly performance, the company shifted back to a net earnings loss after declaring positive net income in the prior quarter. It would have been nice to hear GameStop’s executives account for this in an earnings call, but that never happened.

Don’t Be Swayed by Insider Buying of GME Stock

Again, I’m not going to insult GameStop’s shareholders by calling them the “dumb money.” However, I will reiterate Uerkwitz’s frustration with GameStop as the analyst bemoaned, “no earnings call, little-to-no investor communication, and lack of consistent strategic vision.”

Again, it’s fine to take note of Cohen’s purchase of GME stock. What’s more important, though, is whether GameStop is faring well as a business venture. It’s difficult to say yes with confidence, so I simply can’t recommend investing in GameStop right now.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.

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