Don’t Buy GameStop Stock Until This Happens

Stock Market

It’s the biggest news for video game retailer GameStop (NYSE:GME) stock in months. As you may have heard, GameStop has a new chief executive.

Is this good or bad for GME stock? The answer is: It’s complicated, as the new CEO is controversial and GameStop’s journey to financial health is far from over.

GameStop became the center of attention on Wall Street in 2021 during the peak of the meme stock craze. That’s in the rear-view mirror now, though, and GameStop’s new leader has to set the company on the right path. That won’t be an easy task and GameStop’s CEO will need to prove the critics wrong, which won’t happen overnight.

GME Stock Falls After New CEO Installed

As the old saying goes, the “market has spoken.” GME stock fell after Ryan Cohen was selected and immediately began serving as GameStop’s CEO, president and chairman. The previous chief executive was Matt Furlong, who was ousted in June.

It’s a major transitional period for GameStop, as Diana Saadeh-Jajeh resigned from the company’s chief financial officer position in July.

Executive-level turnover is sometimes a sign that a company is having problems. So, this is a reason for cautious investors to not buy shares of GameStop now.

Besides, Cohen is a controversial figure. Rather than shy away from the meme stock frenzy, Cohen seems to embrace it.

Unfortunately for Cohen, he’s now being investigated by the Securities and Exchange Commission for his unusually timed sale of Bed Bath & Beyond (OTCMKTS:BBBYQ) stock, which is often considered a meme stock.

Can Cohen Set GME on a Path to Profitability?

Frankly, it will take some time to really know whether Cohen can steer GameStop on a course that will lead to profitability.

It is commendable, I’ll admit, that GameStop narrowed its net earnings loss in 2023’s second quarter to $2.8 million, versus a $108.7 million net loss in the year-earlier quarter.

However, much of that loss narrowing was due to cost-cutting efforts. For example, GameStop reduced its selling, general and administrative expenses from 34.1% of net sales in the year-earlier quarter to 27.7% of net sales in Q2 2023.

Perhaps, the market sold GME stock when Cohen took over as GameStop’s CEO because investors want to see more bottom-line improvement. They need to know that Cohen will lead GameStop sensibly and responsibly.

And, they’re probably unsure of whether GameStop’s cost-cutting efforts will pay off in the long run. Hopefully, GameStop’s customer service won’t suffer and the company’s stores will keep the shelves stocked. It will take some time before investors can really be confident about Cohen’s leadership of GameStop.

Don’t Rush Into GME Stock

GameStop is undergoing some major changes, including an executive-level shakeup. Plus, GameStop’s cost-reduction efforts might or might not put the company in a better financial position for the long term.

There are several unknowns and GameStop’s future remains unclear in 2023 and 2024. Therefore, investors should wait a few months, or even a few quarters, if they’re considering buying GME stock.

On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

David Moadel has provided compelling content – and crossed the occasional line – on behalf of Motley Fool, Crush the Street, Market Realist, TalkMarkets, TipRanks, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.