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GameStop’s shares fell 20.2% to $ 145.05 in the midday trading session.
Michael M. Santiago / Getty Images
GameStop
The stock fell rapidly on Wednesday after the company’s fourth-quarter fiscal results disappointed analysts. There is also another elephant in the room: the company is considering selling more shares, which could dilute its shares.
GameStop shares (ticker: GME) closed down 33.8% to $ 120.34. The S&P 500 index fell 0.6%, while the
Dow Jones Industrial Average
finished plan.
In a lawsuit with the Securities and Exchange Commission, GameStop said it is evaluating 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 shares when its valuation skyrocketed.
GameStop’s shares received a mix of downgrades, target price reductions and rises by analysts after the report. “Many on Wall Street wonder why GameStop did not make an ATM transaction to take advantage of the high stock price,” wrote Telsey Advisory Group analyst Joseph Feldman. “The answer may be that your 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 sign that an ATM transaction may be on the way. “
On his way to Tuesday, Feldman had the highest target price listed by FactSet. He lowered his to $ 30 out of $ 33, calling the event “anticlimax”. On the other hand, Jefferies analyst Stephanie Wissink increased her target by 1,066%, to $ 175. This is the new Street-high, in case there were any doubts.
Wissink argued that the moves by Chewy co-founder and GameStop board member Ryan Cohen to turn the company into yet another technology company warrant a completely different valuation method. The disclosure of the company’s results was accompanied by another trio of hires with experience in electronic commerce, including
Amazon
former student Jenna Owens as her next director of operations.
Wissink wrote that she moved from basing her goal on earnings before interest, taxes, depreciation and amortization, or Ebitda, to a multiple of sales that influences the shift to e-commerce.
She also claims that GameStop has the potential to participate in the growth of non-fungible tokens, or NFTs, and in hosting buyable content streams.
“As a result, we expect store closings to persist and sales to be transferred to dot com companies,” wrote Wissink. “Total revenues may fall, but the dollar value of sales is expected to increase if non-retail flows are realized.”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note on Wednesday that they believe the turnaround will involve considerable execution risks and possibly a significant increase in their capital investment. “The recent rise and volatility in GameStop’s share price has not affected our fundamentals view of your business or the risks the company faces,” they wrote. “However, we have seen the potential financial flexibility provided by your improved stock market position if you choose to raise additional capital to reposition your business or reduce your debt.”
Curtis Nagle, an analyst at BofA Global Research, maintained its $ 10 price target and its underperforming rating. He notes that while GameStop’s adjusted earnings per share of $ 1.34 exceeds its estimate of $ 1.22, he notes that the hit was driven by a large tax credit during the quarter. The company’s Ebitda was below its expectations by 66%.
“We remain very skeptical about GME’s efforts to resolve its long-standing problem of digital disintermediation and the fact that its primary market for new and used physical consoles is shrinking at a rapid pace,” added Nagle. “GME also highlighted the use of its existing digital assets, such as its PowerUp rewards program, but this has seen engagement declining for years.”
Wedbush analyst Michael Pachter lowered his GameStop rating from Hold to Underperform, but raised his target price from $ 16 to $ 29. Although he still thinks GameStop is well positioned to benefit from the new gaming consoles.
Sony
and
Microsoft,
he says the short squeeze boosted the stock to “levels that are completely disconnected from the fundamentals of the business”.
“Our downgrade is not a reflection of our opinion on the company’s management, which remains very high; instead, it appears that the ‘real’ value of GameStop shares (the price that willing buyers are prepared to pay on the open market) far exceeds the ‘fundamental’ value that we believe investors expecting a financial return can reasonably wait, ”he wrote.
Write to Connor Smith at [email protected]