Bireme Capital: “GameStop (GME) is Unlikely to Book a GAAP Profit Again”

Investment management company Bireme Capital recently released its second quarter 2022 investor letter. A copy of the same can be downloaded here. The fund outperformed during the quarter and returned -1.4% net of fees compared to 16.1% for the S&P 500 Index. The outperformance was primarily due to gains made on the fund’s short positions, which contributed 16.9% to the portfolio. You can check the top 5 holdings of the fund to know its best picks in 2022.

Bireme Capital discussed stocks like GameStop Corp. (NYSE:GME) in the second quarter investor letter. Headquartered in Grapevine, Texas, GameStop Corp. (NYSE:GME) engages in the business of games and entertainment products. On August 22, 2022, GameStop Corp. (NYSE:GME) stock closed at $34.50 per share. One-month return of GameStop Corp. (NYSE:GME) rose to 6.38% and its shares lost 34.38% of their value over the last 52 weeks. GameStop Corp. (NYSE:GME) has a market capitalization of $10.506 billion.

Here is what Bireme Capital specifically said about GameStop Corp. (NYSE:GME):

“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.”

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GameStop Corp. (NYSE:GME) is not on the list of 30 Most Popular Stocks Among Hedge Funds. As per our database, GameStop Corp. (NYSE:GME) was held by 17 hedge fund portfolios at the end of the first quarter, which was 18 in the previous quarter.

We discussed GameStop Corp. (NYSE:GME) in another article and shared the list of rebounding meme stocks to buy in August. You can check out our hedge fund investor letters Q2 2022 page for more investor letters from hedge funds and other prominent investors.

Disclosure: None. This article is originally published at Insider Monkey.