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GameStop shares fell 20.2% to $ 145.05 during afternoon trading.
Michael M. Santiago / Getty Images
GameStop
Shares fell rapidly on Wednesday after the company’s fiscal fourth quarter results disappointed analysts. There is also another elephant in the room: the company is considering selling more shares, which could dilute the shares.
GameStop stock (ticker: GME) closed 33.8% at $ 120.34. The S&P 500 index fell 0.6%, while the
Dow Jones Industrial Average
ended flat.
In a filing with the Securities and Exchange Commission, GameStop said it has evaluated whether or not to increase the size of the previously announced $ 100 million stock sale program in the marketplace. The company had announced the ATM program in December, with Jefferies acting as a sales agent. The company said it was not selling shares because its valuation was soaring.
GameStop stocks received a mix of downgrades, price cuts and analyst increases after the report. “Many on Wall Street have wondered why GameStop did not execute an ATM transaction to take advantage of the high stock price,” wrote Telsey Advisory Group analyst Joseph Feldman. The answer could be that the balance sheet is in excellent shape, with cash and cash equivalents of $ 635 million (incl. Limited cash of $ 110 million) and debt of $ 363 million at the end of 2020. The new comment seems signal. that an ATM transaction could be underway. “
On the way to Tuesday, Feldman had FactSet’s highest price target. He lowered his from $ 33 to $ 30, calling the event “ anti-climactic. ” On the other hand, Jefferies analyst Stephanie Wissink raised her target by 1.066% to $ 175. That’s the new Street high, in case there was any doubt.
Wissink argued that Chewy co-founder and GameStop board member Ryan Cohen’s steps to transform the company into more of a technology company warrant a completely different valuation method. The release of the company’s earnings was accompanied by another trio of employees with an e-commerce background, including
Amazon
alum Jenna Owens as the next chief operating officer.
Wissink wrote that she moved from basing her goal on earnings before interest, taxes, depreciation and amortization, or Ebitda, to a sales multiplication that contributes to a shift towards e-commerce.
She also points out that GameStop has the potential to participate in the rise of non-replaceable tokens, or NFTs, and host shoppable content streams.
“As a result, we expect store closings to continue and the sale to move to dot com,” Wissink wrote. “Total RPM may fall, but the value per dollar of sales should increase if non-retail flows are realized.”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note on Wednesday that they believe the turnaround will pose significant execution risks and potentially a significant increase in capital investment. “The recent rise and volatility in GameStop’s stock price has not affected our fundamental view of its company or the risks it faces,” they wrote. “However, we note the potential financial flexibility offered by the stock market’s improved position if it chooses to raise additional capital to reposition its business or reduce its debt.”
BofA Global Research analyst Curtis Nagle maintained his $ 10 price target and the Underperform rating. He notes that while GameStop’s adjusted earnings per share of $ 1.34 was higher than its estimate of $ 1.22, he notes that the beat was triggered by a large tax credit during the quarter. The company’s Ebitda exceeded expectations by 66%.
“We remain highly skeptical of GME’s efforts to address the long-standing problem of digital disintermediation and the fact that its core market in new and second-hand gaming on physical console is rapidly shrinking,” added Nagle. “GME also called for leveraging its existing digital assets, such as its PowerUp rewards program, but this has shown a declining engagement for years.”
Wedbush analyst Michael Pachter downgraded his GameStop rating to Underperform from Hold, but raised his price target from $ 16 to $ 29. Although he still thinks GameStop is well positioned to take advantage of the new consoles
Sony
and
Microsoft
he says the short squeeze has raised stocks to “levels completely decoupled from the fundamentals of the company.”
“Our downgrade does not reflect our view of business management, which is still very high; rather, it appears that the ‘real’ value of GameStop stock (the price buyers are willing to pay in the open market) is much greater than the ‘fundamental’ value that we believe investors expecting a financial return can reasonably be expected to expect, ”he wrote.
Write to Connor Smith at [email protected]