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Gamestop: Is it Too Late to Join the Party?

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A struggling multichannel video game, consumer electronics, and collectibles retailer was supposed to be for extinction. However, it had a new lease on life after the COVID year. On January 26, 2021, the shares of GameStop (NYSE:GME) rose 93%, from US$76.79 to US$147.98.

As if the extraordinary spike wasn’t enough, the price soared by another 135% to US$347.51 on the following trading day. The party of average retail investors began. It would cost Wall Street hedge funds millions of dollars. Professional investors were playing a short squeeze or took short positions in GameStop.

Hedge funds were betting on the price to drop, but a new breed of investors snapped up shares to bleed them dry. Following the out-of-this-world surge, the stock price collapsed to US$44.97 on February 23, 2021. As of March 16, 2021, GameStop is up 370% to US$211.43. Many ask now if it’s too late to join the party.

The power of social media

Some analysts say that companies in the Reddit investors’ radars trade way above their fundamental values. The momentum will not sustain, as traders hope to score quick gains only. GameStop will not pass regular due diligence, given that it hasn’t been making money since 2018. The company is also closing stores rapidly.

GameStop is losing the battle against digital gaming. Its products, mostly analog, are nearing obsolescence. But thanks to the power of social media and free trading apps like Robinhood, the embattled retailer is back on the map. Young or even novice investors have greater accessibility to the stock market.

Lose money in a flash

GameStop attract investors worldwide, because it’s a money-making opportunity. For these retail investors, it’s a great wealth redistribution. However, investment experts tell inexperienced traders to stay on the sidelines. The stock is vulnerable to short-term market whims.

Losers will outnumber the winners eventually, according to market observers. Retail traders should watch against sudden price drops. GameStop shares soared through the roof in January then sunk significantly in February. You could lose a lot of money in a flash.

A safer bet than GameStop

There are higher-quality names than GameStop. Your money is safer in a dividend stock like Jamieson Wellness (TSX:JWEL). The $1.51 billion company manufactures, distributes, and sells natural health products in Canada and globally. Jamieson’s business did well in 2020 during the health crisis.

It should thrive even more, as people become more health conscious from here on. Moreover, the financial results for the full-year 2020 are proof of Jamieson’s bright business outlook. Revenue, adjusted EBITDA, and adjusted net income increased by 17.0%, 15.9%, and 25.8% versus the previous year.

Jamieson’s Strategic Partners segment is already providing manufacturing and product development services to blue-chip consumer health companies and retailers. The arrangement is on a contract manufacturing basis.

Its president and CEO Mark Hornick said, “We are pleased that consumers across Canada and around the world are choosing Jamieson in their quest for health and wellness.”  Market analysts recommend a buy rating. The price forecast in the next 12 months is $50 (+32% gain). The consumer-defensive stock pays a 1.38% dividend.

Take away the “fear of missing out”

Do you want to join the GameStop party because of a deep-seated FOMO? Take away the fear of missing out. If you’re investing money you can’t afford to lose, invest in companies with visible long-term growth potentials.

Speaking of whether it's too late to invest in the controversial GameStop stock or not...

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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Christopher Liew has no position in any of the stocks mentioned. David Gardner owns shares of GameStop.

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