PASADENA, CA/USA – OCTOBER 25, 2014: GameStop retail store exterior. GameStop Corporation is an American video game, consumer electronics, and wireless services retailer.

The GameStop stock price surged on Tuesday as the rest of meme stocks surged. The GME stock jumped by more 15% to $343, which was the highest level since March 10 this year. This price action values the company at more than $22 billion.

GME stock soars ahead of earnings

On Sunday, I pointed that GameStop will be a key stock to watch this week. This is simply because the company is expected to publish its quarterly results on Thursday after the market closes. These will be the first results after the company became the poster child of meme stocks.

Wall Street analysts expect that the company will publish a relatively strong quarter since the company has received free advertising worth billions of dollars. Precisely, they see the company’s revenue jumping to more than $1.1 billion in the first quarter. This will be a substantial increase from the $1.0 billion that it generated in the same quarter last year.

The biggest challenge for GameStop, in my view, will be the ongoing semiconductor shortage that has affected its top sellers. Indeed, a quick look at its website shows that PlayStation and Xbox have been sold out. 

Therefore, while GameStop has missed Wall Street earnings in the past nine straight quarters, I expect a beat this quarter. Further, the GME stock will react to the overall company’s forward guidance and the management plans to boost its e-commerce business.

So, is the GameStop stock a buy? From a fundamental perspective, GameStop is clearly overvalued. For one, this is a company that is in a declining business and one that has made losses in the past three straight years. This makes it a bad buy for investors with a long-term horizon. However, as you will see below, from a technical perspective, the stock has some more room to run.

GameStop stock price analysis

GameStop Stock Price
Gamestop Stock Price

On the four-hour chart, we see that the GME stock jumped to a high of $343. A closer look shows that this price was not by accident. Indeed, it was the previous highest point on May 10. Also, the shares seem to be forming a cup and handle pattern, which is one of the best-known continuation patterns. Any declines will be part of the formation of the handle pattern.

Therefore, in my view, I can’t rule out a situation where the GameStop stock price cruises above this resistance ahead of its earnings on Thursday. If this happens, the next key level to watch will be the year-to-date high at $482.

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