MW GameStop's stock is trading at a level that ignores the company's challenges, says Wedbush
By James Rogers
The videogame retailer's shares jumped following the latest cryptic post from influential trader Keith Gill, aka 'Roaring Kitty'
GameStop Corp. shares may have jumped on the latest social-media post from influential trader Keith Gill, aka "Roaring Kitty," but are trading at a level that ignores the company's challenges, according to analyst firm Wedbush.
GameStop $(GME)$ shares ended Thursday's session up 5.9% after initially jumping over 10% following the cryptic post from Gill on X, formerly Twitter. Gill, a pivotal figure in the 2021 meme-stock phenomenon, sent shares of GameStop, as well as AMC Entertainment Holdings Inc. $(AMC)$, skyrocketing earlier this year when he returned to social media. Thursday's post on X was Gill's first since Sept. 6.
Shares of GameStop ended Friday's session up 1.5% at $29.06.
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"GameStop has roughly $10 per share in cash now, but with no clear strategy to reasonably deploy capital, we don't believe shares should trade at 3x cash," wrote Wedbush analyst Michael Pachter in a note released Friday. "GameStop announced accelerated store closures with its last earnings report, and has nonspecific plans to enter the trading-card business; with no clear strategy to leverage its store base, management indirectly appears to be in the midst of closing down its core business."
The Grapevine, Texas-based company's planned return to growth faces "insurmountable barriers," according to Pachter. These include the ongoing shift of game sales from physical to digital, a decline in game sales as microtransactions proliferate, the growth of subscription services, and an ongoing hardware-sales decline as streaming services proliferate. The analyst also pointed to GameStop's "nonspecific strategy to enter the trading-card business with virtually no competitive advantage against established participants."
Set against this backdrop, GameStop shares "trade at a level that ignores the company's many challenges ahead," according to Pachter.
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GameStop did not immediately respond to a MarketWatch request for comment.
In October, GameStop announced a collaboration with Collectors Holdings Inc.'s Professional Sports Authenticator division, which offers trading-card and autograph authentication and grading services.
The company reported a profit in its second-quarter results in September, although its sales fell more than 30% from the previous year.
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GameStop ended the quarter with cash, cash equivalents and marketable securities of $4.204 billion, up from $1.195 billion at the end of the same period last year.
The videogame retailer will report fiscal third-quarter results after market close on Dec. 10.
GameStop has been attracting plenty of attention on Stocktwits, the social platform for investors and traders. "GameStop has consistently been near the most active symbols on Stocktwits ever since the stock broke out above $22," Noor Al, Stocktwits' director of community, told MarketWatch. "We asked users what their interpretation of Roaring Kitty's tweet was, and 2,500 people believe that it's a bullish hint for GME," he added.
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"With GameStop earnings around the corner, DFV couldn't have picked a better time," said Al, referring to Gill's handle of "u/DeepF-ingValue" on Reddit. "The last GameStop earnings call was livestreamed on Stocktwits and the activity and excitement nearly crashed the site."
-James Rogers
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December 06, 2024 17:35 ET (22:35 GMT)
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