An Upcoming Meme Stock ETF Is Great News for GameStop

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GameStop (NYSE:GME) is becoming active again after a brief period of consolidation. GME stock had formed a strong support level at the $150 price level. The stock had tested this support level numerous times proving that it is a durable support level. GME stock has now begun to rally off this support base rising nearly 30% on Aug. 24. After a sharp rise, the stock broke through its 50-day moving average, indicating that this could be the start of another leg-up.

A Gamestop video game store in the Herald Square shopping district in New YorkA Gamestop video game store in the Herald Square shopping district in New York

Source: rblfmr / Shutterstock.com

In keeping with the r/WallStreetBets mantra of “diamond hands,” enthusiasm in the forums has not waned. According to data from Quiver Quantitative, GME stock is still amongst the top five in daily discussions on r/WallStreetBets. This also excludes GME-specific subreddits which are solely focused on GameStop. These data points show that Reddit traders have not grown tired of GME.

GME stock has almost become completely detached from the fundamentals of GameStop. That’s not to say that company developments no longer matter. Rather, what is going on is that traders are incredibly forgiving when it comes to valuation assumptions and multiples. Therefore, the main drivers now of GME stock will be news flow and the resulting momentum.

Will GME stock do another legendary move up?

Record Video Game Sales to Propel GME Stock

Video game sales continue to rise despite the dire warnings from April this year. This is especially impressive considering the tough pandemic comps. Since 2020, video game sales have increased sharply due to everyone being locked inside their homes. Therefore the fact that video game sales have actually grown year-over-year in 2021 shows that a behavioral shift has occurred.

I believe that many people began playing more video games in 2020 in order to cope with the pandemic. These people have stuck around as customers in 2021 despite the easing of restrictions. In other words, they have been converted into gamers.

July was the third straight month of year-over-year growth for the video game industry. This continuous growth was only halted by April’s decline. According to NPD Group, video game sales in July were $4.6 billion, up 10% from last year. Year-to-date spending in 2021 as of July was $33.5 billion.

The continued strength of video game should bode well for GameStop’s revenue. More importantly, the positive headline will provide momentum for GME stock.

Meme ETF to Drive GME Stock Higher

Another important development for GME stock is the announcement of a meme-focused ETF. Roundhill Investments filed its intention with the U.S. Securities and Exchange Commission to launch the Roundhill MEME ETF. According to the filing, stocks to be included in the ETF are determined via a “social media activity score”. This score is based on the number of mentions over a trailing 14-day period on certain social media sites.

The top 50 issuers by social media score are then ranked by short-interest. The top 25 are selected to be part of the ETF with equal weights. The components are rebalanced on a bi-weekly basis.

Having an ETF focused primarily on meme stocks should open the flood gates to more potential investors in GME stock. This is because investing in meme stocks requires a bit of research and effort. Investors need to read the forums and keep up on the news.

However, this is ignoring a whole set of investors who invest passively. Thanks to this ETF, passive investors now have the opportunity to participate in meme stocks as the ETF automatically rebalances its holdings. As one of the most popular meme stocks, GME would surely benefit from this development. I anticipate more funds flowing into GME from passive investors via this ETF.

Investor Takeaway

The next few days could be very interesting for GME stock. By my observation, there is a good chance we could be seeing a move up in the future. I wouldn’t necessarily bet the farm on it. However short-term-oriented traders should consider GME stock.

On the date of publication, Joseph Nograles held a LONG position in GME. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Joseph Nograles is a part-time freelance copywriter focused on the financial industry. He has worked in a wide variety of industries from tech to consulting with one of the “big four.” He has always enjoyed analyzing businesses and has been a CFA charterholder for nearly a decade now.

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