Robin And The Hoods Band

GameStop (NYSE: GME ) stock continues to do what information technology does. Its attraction lies in the take chances at outsized gains rooted in no fundamentally sound argument.

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That's basically what's been true of GameStop for a long fourth dimension. Well, since January of this yr anyhow. That'south when it of a sudden burst into prominence.

I thing to understand most GameStop is that the gains might non exist what some investors assume them to exist. To understand what I mean, let'south become all the way dorsum to the starting time of the phenomenon.

Initial Explosion Favored Few

When GameStop exploded back in January, investors naturally wanted to know how much value was created. From a market capitalization perspective, the answer was roughly $20.iv billion within the first month.

Millionaires were minted overnight. Modest investors made a lot of money, and an alluring headline emerged. The piffling guy was indeed capable of making returns on par with what institutions regularly see.

But what gets lost is the fact that of that $20.4 billion, $16 billion of the gains went to 9 private investors. Among them was Chewy (NYSE: CHWY ) co-founder Ryan Cohen. His story is pretty amazing in the context of GameStop's rise to prominence. But the bespeak I'g making is that information technology's worth noting that GME stock isn't precisely bringing the ability back to the people every bit evidenced by the distribution of those early returns.

We only don't hear about the smaller investors who jump in and fail miserably. They don't show up in Wall Street Journal headlines. And I'd as well speculate that they are much less likely to share their pain on the echo chamber of r/wallstreetbets.

Whether we hear their stories or not, the truth remains that iii-quarters of the early gains went to a select few. Kudos to them, simply I'g simply making the indicate that $4 billion divided many means is a far less compelling hook.

Ryan Cohen, though, is a keen headline.

Incredible Rise

He went from 12% shareholder to essentially running the company. He was offered a position on GameStop'south board of directors back in 2019, before everything interesting nearly the company occurred.

Cohen declined that offering. Ultimately he inserted himself by degrees into the company'southward decision making. He's become a folk hero for meme stock followers. But as interesting as his ascent has been, it's necessary to divorce your investment from his narrative.

Once more, he has been 1 of the select few to benefit on a massive scale from GameStop. And at the stop of the day, GameStop remains fundamentally flawed.

The promise of Ryan Cohen is that GameStop volition reinvent itself into a more digitally savvy, due east-commerce dependent entity.

In turn, sales will rise. Only that has nonetheless to testify any signs of materializing.

Growth Projections for GME Stock

GameStop isn't expected to grow from a summit line perspective. Analysts project that the company will record $five.67 billion in revenue this twelvemonth, and $5.54 billion side by side year.

Increased digitization of GameStop ostensibly leads to greater margins over fourth dimension. That's a clear bottom-line argument in favor of a digital strategy for the brick-and-mortar game visitor.

But current projections suggest that peak line growth merely isn't to be expected for more than a year.

Exercise y'all think that traders boasting about their gains on r/wallstreetbets will be plenty to keep GME stock relevant for some other year? Perhaps it volition, I don't know. But at some indicate, investors will have to come to grips with the central truths behind GameStop.

If Cohen doesn't fundamentally improve GameStop, then what separates his massive gains from other Wall Street successes that r/wallstreetbets despises? I would say it'due south only more of the same packaged slightly differently in that case.

On the appointment of publication, Alex Sirois did non accept (either directly or indirectly) whatsoever positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject field to the InvestorPlace.com Publishing Guidelines .

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing manner is focused on long-term, buy-and-hold, wealth-edifice stock picks. Having worked in several industries from e-commerce to translation to pedagogy and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.