Shares fell rapidly on Wednesday after the company’s fourth-quarter tax results disappointed analysts. There’s also another elephant in the room: The company is considering selling more shares, which could dilute its shares.
GameStop stock (ticker: GME) closed 33.8% lower, at $ 120.34. The S&P 500 index fell 0.6%, while the index
Dow Jones Industrial Average
In a filing with the Securities and Exchange Commission, GameStop said it is assessing whether or not to increase the size of its previously announced $ 100 million market share program. The company had announced the ATM program in December, with Jefferies acting as a sales agent. The company said it did not sell any shares as its valuation rose.
GameStop action received a mix of downgrades, price target cuts and hikes from analysts in the wake of the report. “A lot of Wall Street has wondered why GameStop didn’t make an ATM trade to take advantage of the high stock price,” wrote Joseph Feldman, analyst at Telsey Advisory Group. Maybe the answer is that its balance sheet is in great shape, with cash and cash equivalents of $ 635 million (including restricted cash of $ 110 million) and debt of $ 363 million. at the end of 2020. The new comment appears to be a signal that an ATM transaction may be in progress. ”
As Tuesday approached, Feldman had the highest price target listed by FactSet. He lowered his to $ 30 instead of $ 33, calling the event “anti-climactic.” On the flip side, Jefferies analyst Stephanie Wissink raised her target from 1066% to $ 175. This is the new Street-high, in case there is any doubt.
Wissink argued that the steps Chewy co-founder and GameStop board member Ryan Cohen took to transform the company into a tech company warranted a completely different valuation method. The company’s earnings release has been linked to another trio of hires with e-commerce backgrounds including
alum Jenna Owens as the next COO.
Wissink wrote that she went from basing her focus on earnings before interest, taxes, depreciation and amortization, or Ebitda, to a sales multiple that takes into account the move to e-commerce.
She also points out that GameStop has the potential to help drive the rise of non-fungible tokens, or NFTs, and the hosting of purchasable content streams.
“As a result, we expect store closures to persist and sales to shift to dot com,” Wissink wrote. “The total number of turns may decrease, but the value per dollar of sales is expected to increase if non-retail flows are made. ”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note Wednesday that they believe the turnaround will involve significant execution risks and possibly a significant increase in its capital investment. “The recent rise and volatility in GameStop’s stock price has not affected our view of its business or the risks the company faces,” they wrote. “However, we note the potential financial flexibility offered by its better position in the equity market should it choose to raise additional capital to reposition its business or reduce its debt.”
BofA Global Research analyst Curtis Nagle maintained his price target of $ 10 and his underperformance rating. He notes that while GameStop’s adjusted earnings per share of $ 1.34 exceeded its estimate of $ 1.22, he notes that the pace was driven by a large tax credit in the quarter. The company’s EBITDA was 66% below expectations.
“We remain very skeptical of GME’s efforts to address its long-standing digital disintermediation problem and that its core market in new and used physical console games is shrinking at a rapid rate,” Nagle added. . “GME has also called for leveraging its existing digital assets, like its PowerUp rewards program, but that engagement has waned for years.
Wedbush analyst Michael Pachter downgraded his rating on GameStop to Underperform of Hold’em, but raised his price target from $ 16 to $ 29. While he still believes GameStop is in a good position to benefit from the new consoles of
he says the short-term squeeze has propelled the stock “to levels completely disconnected from the fundamentals of the company.”
“Our demotion does not reflect our opinion on the management of the company, which remains very high; rather, it appears that the “real” value of GameStop stocks (the price that buyers willing to pay are willing to pay in the open market) far exceeds the “fundamental” value that we think investors expect a return to pay. financial can reasonably be expected, ”he wrote.
Write to Connor Smith at [email protected]