Michael Burry, of The Big Short fame, has been buying shares of GameStop (NYSE:GME | GME Price Prediction) again, and it might have more to do with the low price of admission than anything else.
Of course, the notable bet has caused the name that exploded onto the scene during the 2021 meme stock craze to be back in the headlines, and while there’s a non-zero chance for another meme stock rally, it certainly sounds like Burry is playing the long game on a name that stands out as a real value stock according to a number of metrics.
Add the proven leader in CEO Ryan Cohen into the equation, and it certainly seems like GameStop shares are one of the names that might be overlooked by much of Wall Street. Perhaps that’s due to the relative lack of momentum or the company’s history as a meme stock, rather than a serious value investment.
Don’t get your hopes up for a meme run
Even if Roaring Kitty and the rest of Reddit’s r/WallStreetBets aren’t ready to give shares of GameStop another go for a shot at a short squeeze, I do think there is a path higher for the stock. Of course, when you hear of GameStop stock, it’s hard not to think about a meme surge. But Burry is “not counting on a short squeeze,” and neither should investors interested in the name. In my opinion, the modest price of admission, the strategic direction, and Mr. Cohen’s stewardship are more exciting than the possibility of any short-lived spike.
And while a sudden pop could certainly happen at any time, I wouldn’t seek to trade the stock now that a Michael Burry premium of sorts has been priced in. Arguably, such a jump has already happened. Shares have been on the ascent in the past week, now up close to 12%, bringing the monthly gain to around 18%.
Could it be that the relative value that Burry may have recognized is already corrected? Time will tell. Either way, I certainly wouldn’t view the latest action as a precursor to a meme-like leg higher.
Personally, it’s going to be very difficult, if not nearly impossible, to reach the former 2021 peak. Of course, sudden upside spikes in the name have happened before, and that means shares of GameStop will never be a safe stock to short.
In the meantime, I wouldn’t at all be surprised if Burry is fine hanging onto his new position for the long run.
Shares are still cheap, and things are looking up under Cohen
I wouldn’t trade GameStop stock right here, especially if you’re looking for a quick gain. If, however, you’re looking for a hard-hit retailer with a reasonable multiple as well as a compelling turnaround strategy and insider buying (from Cohen himself, who purchased 500,000 shares earlier this month), I do view GameStop as a great mid-cap value stock to stash away for the next couple of years.
You’d be in good company as a shareholder alongside the likes of Cohen and Burry. Even with the Burry (and Cohen) hype already baked in, the value case still stands out, at least in my view.
The stock goes for 2.0 times price-to-book (P/B) and 3.2 times price-to-sales (P/S). That’s cheap, especially considering Cohen and company have done such a great job in shifting gears to collectibles (which have boomed of late), which is a growing slice of the revenue pie.
With an improved balance sheet and the potential to further improve the store mix, I’m inclined to view GameStop as more of a must-visit mall staple for toys and higher-margin collectables, and less of a place to buy a console or video game.
Perhaps there’s no longer a reason to go short and a ton of reasons to go long, even if GameStop never sees another meme rally again. In my view, Burry’s bet suggests there’s real value to be had here. And I don’t think the market has yet appreciated that.
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