GameStop’s earnings are coming. Nobody knows what to expect.

Text size

After two months of wild negotiation,

GameStop

will present the results for the January quarter on Tuesday. What this means for the stock is anybody’s guess.

In a note on Thursday, Wedbush analyst Michael Pachter wrote that GameStop is “well positioned to be the main beneficiary of new console launches”. But he thinks the shares are being traded at levels disconnected from the fundamentals. Although Pachter classifies the shares as neutral, he has a target price of $ 16. GameStop’s shares rose 4.6% to $ 211 on Friday.

Now, many Americans know why. GameStop’s shares were widely criticized by Wall Street analysts, with the stock falling around the price of a Happy Meal a year ago. It attracted obscene overdraft interest, which means that hedge funds were lining up to bet on falling prices. But when short sellers get ahead, positive news can trigger stocks to skyrocket as they rush to buy stocks to close their bets in the face of unlimited disadvantages.

In the second half of last year, Chewy co-founder Ryan Cohen joined the mix. He revealed a stake and later called for major changes. He increased his stake in December and joined the board in January with two associates.

Based on the stock’s open interest and the possibility that GameStop could find a second life as a gaming-focused e-commerce player, retailers on Reddit’s WallStreetBets forum have piled into GameStop’s stock. The technical peculiarities of the options activity, the aforementioned overdraft interest and the newly discovered enthusiasm caused GameStop’s stock to skyrocket in January.

WallStreetBets made it to the front pages of national newspapers and pessimistic hedge funds were set on fire. It also initiated a debate on short selling, as well as on retail traders’ access to financial markets after Robinhood and other brokers temporarily limited the purchase of shares due to the financial needs of their clearing houses.

GameStop’s stock fell about $ 40, but skyrocketed again last month. Although GameStop announced a search for a new chief financial officer, some promising hires focused on e-commerce and a board committee chaired by Cohen to guide its transformation into a technology company, it has not provided an update on sales or prospects since its inception. year-end sales launch on January 11, which signaled a disappointing December.

For the entire fiscal fourth quarter, Pachter, the Wedbush analyst, expects sales of $ 2.3 billion, comparable sales up 4.8% year on year and adjusted earnings of $ 1.38 per share. He notes that GameStop’s year-end sales report indicated that same-store sales fell year on year in December and lagged behind positive NPD data across the industry. He notes that the company has lost market share in recent periods to competitors amid a shift in spending on the Internet.

BofA Global Research analyst Curtis Nagle wrote in a note on Friday that he expects a disappointing, yet profitable, quarter. He wrote that while the recent announcements related to Cohen and the new hires are positive, in theory there were no real details about cost, schedule and impacts on earnings from a recovery plan. It has a $ 10 price target with an underperforming rating, noting that the current valuation and historical multiple of the stock would imply earnings before interest, taxes, depreciation and amortization of $ 3.5 billion, about four times the 2015 Ebitda peak.

Nagle’s note included an analysis of the impact of $ 1,400 in direct payments on shares, with the idea that retail investors will use their unexpected earnings from GameStop shares. His conclusion is that “stimuli”, as he calls them, will not affect GameStop’s actions going forward.

Of course, what analysts said about GameStop’s actions has not had much impact on its recent moves. A positive update to the recovery plan could frustrate the remaining bears in the short term. On the other hand, any comments on possible stock sales can be negative. Pachter expected short sellers to abandon their bets, with stocks returning to more basic levels. It didn’t, he noted.

“Activists control the company’s board, and chief activist Ryan Cohen, founder of Chewy, plans to reveal a new strategy soon,” added Pachter. “When the new strategy is revealed and we can evaluate it, we will review our estimates and PT.”

Write to Connor Smith at [email protected]