Shares fell rapidly on Wednesday after the company’s fiscal fourth-quarter results disappointed analysts. There is also another elephant in the room: The company is considering selling more shares, which could dilute its shares.
Shares of GameStop (ticker: GME) closed 33.8% lower at $ 120.34. The S&P 500 Index fell 0.6%, while the
Dow Jones Industrial Average
In a filing with the Securities and Exchange Commission, GameStop said it has been 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 because its valuation increased.
GameStop shares received a combination of markdowns, price target cuts and raises from analysts after the report. “Many on Wall Street have wondered why GameStop has not made an ATM transaction to take advantage of the high stock price,” wrote Joseph Feldman, an analyst at Telsey Advisory Group. “The answer may be that its balance sheet is in good shape, with cash and cash equivalents of $ 635MM (including restricted cash of $ 110MM) and debt of $ 363MM at the end of 2020. The new comment seems to be a sign that an ATM transaction could be on the way. “
Heading into Tuesday, Feldman had the highest price target listed by FactSet. He lowered his to $ 30 from $ 33, calling the event “anti-climate.” On the other hand, Jefferies analyst Stephanie Wissink raised her target by 1,066% to $ 175. That’s the new Street-high, in case there’s any doubt.
Wissink argued that Chewy’s co-founder and GameStop board member Ryan Cohen’s moves to transform the company into a technology company warrant an entirely different valuation method. The company’s earnings release was paired with another trio of employees with e-commerce experience, including
alumna Jenna Owens as her next COO.
Wissink wrote that it went from basing its target on earnings before interest, taxes, depreciation and amortization, or Ebitda, to a sales multiple that influences the switch to e-commerce.
It also notes that GameStop has the potential to participate in the rise of non-fungible tokens, or NFTs, and hosting of content streams that can be purchased.
“As a result, we expect store closures to persist and sales to shift to dot coms,” Wissink wrote. “Total revolutions may go down, but the value per dollar of sales should increase if there are non-retail flows.”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note Wednesday that they believe the change will involve considerable execution risks and possibly a material increase in their capital investment. ” The recent rise and volatility in GameStop’s share price has not affected our view of its business or the risks the company faces, ”they wrote. “However, we see the potential financial flexibility that your enhanced position in the stock market offers if you choose to raise additional capital to reposition your business or reduce your debt.”
BofA Global Research analyst Curtis Nagle maintained his $ 10 price target and underperforming rating. He notes that while GameStop’s adjusted earnings per share of $ 1.34 exceeded his estimate of $ 1.22, he notes that the pace was driven by a large tax credit during the quarter. The company’s Ebitda did not meet its expectations by 66%.
“We remain highly skeptical of GME’s efforts to address its long-standing digital disintermediation problem and the fact that its core market for new and used physical console games is shrinking at a rapid rate,” added Nagle. . “GME also claimed leveraging its existing digital assets, such as its PowerUp rewards program, but this has seen a decline in engagement over the years.”
Wedbush analyst Michael Pachter lowered his rating on GameStop to Underperform from Hold, but raised his price target to $ 29 from $ 16. While he still believes that GameStop is well positioned to benefit from new consoles from
says the small contraction has propelled stocks to “levels that are completely disconnected from the fundamentals of the business.”
“Our reduction does not reflect our opinion on the management of the company, which is still very high; rather, it appears that the ‘real’ value of GameStop shares (the price willing buyers are willing to pay on the open market) far exceeds the ‘fundamental’ value that we believe investors hoping for a financial return can expect. reasonably, ”he wrote.
Write Connor Smith at [email protected]