Why GameStop Stock Soared 87% in March

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What happened

GameStop (NYSE:GME) shareholders trounced the market last month, with their stock jumping 87% compared to a 4.2% rise in the S&P 500, according to data provided by S&P Global Market Intelligence.

The spike put the volatile stock back up above 900% returns since the start of 2021, yet it is still far from its all-time high above $300 per share.

Image source: Getty Images.

So what

Just when it seemed like the stock’s buying frenzy had ended, the video game retailer saw renewed interest after it announced progress in crafting its transformation plan. GameStop shares slumped later in the month following the company’s fourth-quarter earnings report, but then quickly rebounded to end solidly higher for March.

GameStop’s fourth-quarter report showed a return to sales growth over the holidays, although sales were still lower for the retailer’s full fiscal year.

Now what

GameStop remains a highly speculative and risky investment. With net losses occurring in each of the last two years and sales declining as demand shifts toward digital game purchases, any bet on the stock assumes its future will be much brighter than its recent past has been. March’s stock price rally heightens the risk of a slump that might catch shareholders by surprise.

That’s why investors should tread carefully when considering owning a piece of GameStop. There are far more profitable, growing businesses in the video game industry. And holding these high-performing companies won’t cause nearly as much stress over the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. 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.