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GameStop stocks have been on a wild ride for two months.
Justin Sullivan / Getty Images
After two months of wild trade,
GameStop
will publish the results for the January quarter on Tuesday. What that means for the stock is a guess.
Wedbush analyst Michael Pachter wrote in a note on Thursday that GameStop is “well positioned to be the primary beneficiary of the new console’s launch.” But he thinks stocks are trading at levels decoupled from fundamentals. Although Pachter rates the stock on Neutral, he has a price target of $ 16. GameStop stock rose 4.6% to $ 211 on Friday.
Many Americans now know why. GameStop stock was widely panned by Wall Street analysts, with the stock falling around the price of a Happy Meal a year ago. It garnered an obscene short-term interest rate, meaning hedge funds were lining up to bet on a price drop. But when short sellers lead the way, positive news can cause stocks to soar as they rush to buy stocks to take their bets despite unlimited downside.
In the second half of last year, Chewy co-founder Ryan Cohen entered the mix. He unveiled a commitment and later called for major changes. He increased his stake in December and joined the board in January with two employees.
Capitalizing on the stock’s short-term interest rate and the possibility that GameStop could find a second life as a gaming-focused ecommerce player, retailers on Reddit’s WallStreetBets forum piled up in GameStop stock. Technical idiosyncrasies of the options activity, the aforementioned short-term interest rate, and renewed enthusiasm caused GameStop’s stock to rise in January.
WallStreetBets made the front pages of national newspapers and the bearish hedge funds were set on fire. It also sparked a debate about short selling, as well as a discussion about retailers’ access to financial markets after Robinhood and other brokers temporarily restricted the purchase of the stock due to financial requirements from their clearing houses.
GameStop shares fell around $ 40, but rallied again in the past month. Although GameStop announced a search for a new chief financial officer, some promising e-commerce-focused employees, and a board committee chaired by Cohen to guide the transformation into a technology company, it has since provided no update on sales or the outlook. the Christmas sale on January 11, which meant a disappointing December.
For the full fiscal fourth quarter, Pachter, the analyst at Wedbush, expects revenue of $ 2.3 billion, comparable store sales up 4.8% year-over-year, and adjusted earnings of $ 1.38 per share. He notes that GameStop’s sales report indicated that same-store sales declined year-on-year in December, lagging positive industry-wide data from NPD. He notes that the company has lost market share to competitors in recent periods due to a shift to internet spending.
BofA Global Research analyst Curtis Nagle wrote in a note on Friday that he expects a disappointing, albeit profitable, quarter. He wrote that while the recent announcements regarding Cohen and new hires are positive, in theory there are no actual details about the cost, timeline, and revenue impact of a turnaround plan. He has a price target of $ 10 with an underperform rating, noting that the current valuation and the historical multiple of the stock would imply earnings before interest, taxes, depreciation and amortization of $ 3.5 billion, about four times peak Ebitda of 2015.
Nagle’s note included an analysis of the impact of $ 1,400 direct payments on the stock, with the idea that retail investors will use their latest windfall on GameStop stock. His takeaway is that the “stimmies,” as he calls them, will not affect GameStop stocks in the future.
Of course, what analysts have said about GameStop stocks hasn’t influenced the recent moves much. A positive update to the turnaround plan could thwart the remaining bears in the short term. On the other hand, any comment on possible stock sales could be negative. Pachter had expected short sellers to give up their bets, with the stock returning to more fundamental levels. That did not happen, he noted.
“Activists control the company’s governance and lead activist Ryan Cohen, founder of Chewy, plans to unveil a new strategy soon,” Pachter added. “When the new strategy is revealed and we can evaluate it, we will revisit our estimates and PT.”
Write to Connor Smith at [email protected]