Why GameStop Is Down for the Third Day After Its Stock Split

What happened

Shares of GameStop (GME -4.30%) are falling 3.2% at 11:10 a.m. ET on Tuesday on no company-specific news. Walmart‘s profit warning yesterday spooked the market, and the Dow Jones Industrial Average and S&P 500 are both lower, though each is down less than 1%, respectively.

Tuesday also marks the third consecutive trading day since GameStop split its stock that its shares have fallen. Stock splits are often seen as bullish indicators and the video game retailer’s investors were hoping it would spur a big surge in price to trigger a short squeeze. That hasn’t happened.

So what

The prospects for a recession weigh on retailers everywhere, but GameStop is already a troubled company that’s been trying to turn its business around. The video game retailer has leaned heavily into the cryptocurrency market by launching a non-fungible token (NFT) wallet as well as an NFT marketplace where the tokens can be bought and sold.

Unfortunately for GameStop, its timing was off as the crypto and NFT world is going through a collapse that’s being characterized as a “crypto winter.” Valuations and volumes have tumbled sharply making it difficult for GameStop’s efforts to offer any meaningful contribution.

Now what

The video game retailer’s 4-for-1 stock split is not going the way traders had hoped. The stock began trading at its new lower share price last Friday and it’s lost over 14% of its value so far.

GameStop shares remain heavily shorted — about one-fifth of the outstanding shares are sold short — but the fundamentals of the company’s business seem to be taking precedence now. As a meme stock, GameStop shares often are traded based on the volume of social media mentions, but in a worsening economy, it really comes down to whether the company can perform, and right now there’s no indication the video game retailer is heading in the right direction.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart Inc. The Motley Fool has a disclosure policy.

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