Ryan Cohen’s ‘Inane’ Move Is Bad News for GME Stock

What do you do if you’re running a struggling retail company that is bleeding red ink as sales continue to fall? Apparently if you’re Ryan Cohen, the CEO of GameStop (NYSE:GME), you decide that it’s time to take some of your cash and invest it in other stocks. Huh?

Yes, GameStop’s Cohen, the co-founder of online pet supplies retailer Chewy (NYSE:CHWY) who has since become a hero of the meme stock crowd, has decided to take some of GameStop’s more than $1.2 billion in cash and use it to speculate on other stocks.

GameStop said in a SEC filing earlier this week that the company’s board (which Cohen is chairman of by the way) approved a new plan that “permits the Company to invest in equity securities, among other investments.”

This is a curious move to say the least.

GameStop Turns to Stock Picking in Latest Bet

For one, allowing Cohen to use cash in the company’s coffers to buy other stocks makes GameStop an even riskier bet than it already is. Who’s to say that Cohen will make good choices?

As the company itself explained in its SEC filing, a few of the potential concerns with the new strategy are that “the value of our securities may decline” and that the company’s investments “may be concentrated in just one or a few holdings.” In other words, “a significant decline in the market value of one or more of such holdings may not be offset by hypothetically better performance of other holdings.” That could lead to “a more pronounced effect on net income and shareholders’ equity, and may result in greater volatility in the fair market value of the Company’s holdings of securities from one period to another.”

Of course, you can say the same thing about any investment. Even Warren Buffett has made some bad stock choices from time to time. But let’s be honest here. Ryan Cohen is no Warren Buffett, a buy-and-hold investor who looks for profitable market leaders. Cohen has shown more of a vulture-like knack for investing in retail companies with questionable fundamentals and then selling them before they implode.

Chewy, for example, has been a dog (pardon the pun) of a stock. It’s currently trading not far from an all-time low. (Cohen cashed out before the stock tanked.) And Cohen’s other big stock bet, in bankrupt retailer Bed Bath & Beyond, hasn’t exactly made him look like an investing genius either. Cohen took a brief stake in Bed Bath & Beyond in 2022 before selling it… and the SEC is now reportedly investigating his quick exit.

So, it’s not clear why GameStop investors should be so excited. Still, the stock surged more than 10% Thursday following the news of GameStop’s investment plans… even though GameStop also reported a loss of more than $3 million in the third quarter as sales fell nearly 10% from a year earlier.

The Bottom Line on GME Stock

GameStop’s decision to focus on buying other stocks shouldn’t inspire confidence in the company’s ability to get the core business back on track. Wedbush analyst Michael Pachter, who dubbed the new investment strategy as “the most inane decision” he has ever seen, said in a report that investors “do not need GameStop to act as a mutual fund.” Pachter noted that the company “should use its excess cash to buy back stock,” adding that the move by GameStop and Cohen was “alarming.”

The implication here, Pachter argued in a post on X, is that Cohen “clearly believes GameStop stock is a lower return investment than other market opportunities.”

So, if the GameStop CEO would rather use some of the company’s cash to buy other stocks instead of purchasing more GameStop shares or reinvesting in the actual business, why should average investors feel confident putting their own money in the floundering retailer?

As of this writing, Paul R. La Monica did not hold (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.