‘Bail Out Before Profits,’ Analyst Says of GameStop Stock

It is common knowledge GameStop (NYSE:GME) has a rabid and loyal investor fan base, but the relationship appears to be one-sided. The video game retailer’s management has offered little in return, with no earnings calls or outlooks to keep investors informed.

With GameStop set to report second-quarter results after hours tomorrow (Tuesday), Wedbush analyst Michael Pachter expects the company to do more of this sort of thing.

“Management continues to avoid investor interaction, forgoing the customary conference call and Q&A sessions that typically accompany earnings releases,” the analyst said. “The company has not provided formal sales or earnings guidance since 2019 and is not helping investors understand the pace of store closures or the performance of new revenue categories.”

For the quarter, Pachter forecasts net revenue of $900 million, down 22.7% year-over-year, and earnings per share of $(0.01), compared to consensus estimates of $896 million and $(0.09), respectively.

The expected “modest sequential improvement” in the earnings profile is primarily due to higher interest income from two equity offerings, totaling 120 million shares, which provided the company with approximately $3 billion in cash, or about $7 per share.

Industry sales were about flat compared to the same period last year, with declines in hardware sales offset by a solid slate of software releases. But while Pachter thinks GameStop may have benefited from “flat industry sales,” the continued shift to digital likely resulted in a poor quarter.

Patcher argues that the company’s planned return to growth faces an “almost insurmountable barrier” of multiple headwinds. These include the continued shift from physical to digital game sales, declining game sales due to the rise of microtransactions, the expansion of subscription services, a decline in hardware sales as streaming services gain popularity, and the “complete lack of a strategy to enter new categories with growth potential.”

“GME stock is trading at levels that ignore the company’s many challenges,” Pachter summarized, maintaining an Underperform (i.e. Sell) rating on the stock along with an $11 price target. That figure assumes a 54% downside from current levels. (To look at Pachter’s track record, (click here)

There currently appear to be no other analysts covering GME’s progress, with Pachter’s rating being the only one on file. (See GameStop Stock Forecast)

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Disclaimer: The opinions expressed in this article are solely those of the named analyst. The content is for informational purposes only. It is very important to do your own analysis before making any investment.