GameStop’s (GME) stellar 2020 market performance got a reality check this week. After almost tripling this year, shares of the video game retailer cratered by 21%, after the company disappointed investors with its latest earnings report.
Specifically, the company reported F3Q20 revenue of $1 billion, a 30.6% year-over-year drop and coming in $90 million below Street estimates. While Non-GAAP EPS of -$0.53 beat the analysts’ forecast by $0.32, same store sales declined by 24.6% year-over- year.
The company also said it has filed a shelf registration statement with the Securities and Exchange Commission to sell more stock “at-the-market.” While this will strengthen the balance sheet it will also lead to share dilution.
Wedbush analyst Michael Pachter expects the proceeds will go toward paying down GameStop’s debt balance. The analyst believes “lowering debt levels will give the company added flexibility to grow its ecommerce business and to continue to trim store level expenses.”
While GameStop provided only “limited visibility” where forward guidance is concerned, the analyst expects the company will be a “primary beneficiary of the new console launches,” and remains upbeat about a “return to profitability by FY:21.”
However, while Pachter is positive GameStop can execute in the year head, too much pandemic-related uncertainty remains for the analyst to alter his current thesis.
“We are cautiously optimistic that GameStop has the right management taking the right steps to address all of the unknowns ahead and are significantly more positive on the story than we have been over the past year,” Pachter noted. “That said, GameStop shares have more than doubled over the past months (+11% for S&P), and we are unprepared to increase our PT until we see a favorable resolution to current unknowns.”
To this end, Pachter rates GME a Neutral (i.e. Hold) along with a $16 price target. Following this week’s sell-off, this target suggests a 20% upside potential. (To watch Pachter’s track record, click here)
Rating wise, the rest of the Street is of a similar view. Based on 1 Buy, 4 holds and 3 Sells, the stock has a Hold consensus rating. However, there is a strong divergence where the price target is concerned. In contrast to Patcher’s projected uptick, going by the $8.30 average price target, the Street is anticipating ~38% drop in the year ahead. (See GME stock analysis on TipRanks)
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