GameStop (NYSE:GME) Stock doesn’t seem to do anything by half measures. After a long absence, a recent tweet by Roaring Kitty, the person largely responsible for kicking off 2021’s meme stock mania, sent the video game retailer’s shares soaring into the stratosphere over the course of a few sessions last week.
However, consider those who decided to get in after the stock rose nearly 180% over those two sessions, as the stock was heading down at almost the same speed during the rest of the week.
The sharp correction continued after the company made good use of the rally when it announced – alongside preliminary first-quarter results – that it had issued an open market sale agreement, allowing for the sale of 45 million shares.
Even the most credentialed editor would consider dilution of the attendant’s share of such an act a reason to remove the diamond from their hands. However, Wedbush’s Michael Pachter considers it a good move.
“GameStop is taking advantage of the recent rise in stock price by prudently issuing shares at a premium, providing itself with a greater level of reserves as it struggles to refocus its business and reverse ongoing operating losses,” the analyst explained.
The company will need all the help it can get in light of its initial results. GameStop expected first-quarter revenue to be between $872 million and $892 million, below the consensus of $1.045 billion and well below the $1.237 billion from a year earlier. Looking ahead, Butcher expects hardware sales to “decline even further” this year.
As for the bigger picture, Butcher sees no reason to believe GameStop can “save its way to prosperity,” as the analyst expects the mix of software sales to continue shifting from the physical world to the digital world. “While there will likely be a new Nintendo console next year and an overall increase in software sales from GTA VI, we believe GameStop will see a continued decline in sales next year as well.” “Ultimately, a company must use its cash productively or continue to hope that it can issue more shares at elevated levels to prevent the inevitable.”
To that end, although Pachter raised his price target from $5.6 to $7, suggesting that shares now have “only” 68% downside, his Underperform (i.e. Sell) rating remains intact. (To view Butcher’s track record, click here)
Overall, as the recent rally has shown, GameStop stock may still have a lot of following among the retail crowd, but on Wall Street, Pachter’s assessment aside, there are no other analysts currently monitoring its progress. (be seen GameStop stock analysis)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
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