A GameStop store in lower Manhattan in New York City.
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GameStop stock has mostly held up after the company said it planned to expand its stock sale program. Bearish Wall Street analysts aren’t budging.
GameStop stock (ticker: GME) dipped just 1.3% to $184.50 on Tuesday, while the S&P 500 index dipped 0.1%. The company’s shares initially sank on Monday before bouncing back. The stock is down 0.5% in Tuesday afternoon trading. The company said it could sell 3.5 million shares at market prices, expanding a previously announced plan following the stock’s parabolic run. The stock has closed above $180 for the last seven days, and looks set to do it again on Wednesday.
GameStop stock also initially sank following last month’s fourth-quarter earnings report, but such drops were only temporary. The stock is still up 5,615% from 12 months ago, while the mean analyst price target listed by FactSet is $45.42.
BofA Securities analyst Curtis Nagle stuck to his $10 price objective and Underperform rating in a note on Monday. While plans to sell up to 3.5 million shares will give the company more cash and flexibility, Nagle is still skeptical on the company’s turnaround prospects.
He notes that GameStop’s preliminary sales results for the start of the new fiscal year, while solidly up year-over-year, appeared to lag industrywide figures from for the month of February, signaling a continued trend of high market share loss for GameStop.
“GME’s core gaming business is extremely challenged and losing share at a highly concerning rate,” Nagle wrote. He thinks any progress on transitioning the business or acquiring new ones is more than priced into the stock.
The company’s current share price at a 10 times multiple implies earnings before interest, taxes, depreciation, and amortization of $1.2 billion. Nagle calls such a multiple “too generous” compared to historical multiples of around four times. But even if you concede on that, Nagle doesn’t think it’s realistic to assume GameStop can even hit that Ebitda figure.
Wedbush analyst Michael Pachter is optimistic about the company’s prospects of hitting profitability in fiscal 2021, noting that GameStop will benefit from last fall’s launch of new gaming consoles. He also argued the company is cashing in on the short squeeze, giving it a chance to enhance its capital structure at a minimum. Still, he rates the stock at Underperform with a $29 price target.
“The high-profile sustained short squeeze seen in recent months, however,has spiked the share price to levels that are completely disconnected from thefundamentals of the business,” Pachter wrote.
In a note on Monday, Telsey Advisory Group analyst Joseph Feldman raised his fiscal 2021 earnings estimate to 40 cents a share, up from 30 cents a share. His models for earnings call for $1.30 per share in fiscal 2022. Though he pointed to the new consoles and efforts by director Ryan Cohen to transform the business into an e-commerce company as potential benefits, he maintained a $30 price target and an Underperform rating.
“The company has yet to show financial success in an industry that is rapidly shifting to digital,” Feldman wrote. “And, we continue to believe the current valuation far exceeds our rosy fundamental expectations and projected multi-year benefits from the strategic transformation.”
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