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GameStop Close to Profitability, Far from Fundamentals

Everyone remembers the fundamental-shattering short squeeze in GameStop Corp. (GME) back in late-January, but fewer may know that the stock has yet to come down from its inflated levels. In fact, it has remained a sweet spot in retail investors’ hearts, and their support is suspected to be propping up the video gaming retailer far higher than analysts can stomach.  (See GameStop stock charts on TipRanks)

Providing an updated hypothesis on the matter is Michael Pachter of Wedbush Securities, who wrote that GameStop is poised to achieve profitability by the end of this year, bolstered by hardware and accessory sales. 

Pachter reiterated a Sell rating on the stock, and added a price target of $50. This target represents a possible 12-month downside of –74.90%.  

The bearish analyst wrote that despite recently beating Wall Street consensus estimates on revenue, the stock remains “completely disconnected from the fundamentals of the business.” Retail investors poured in during the short squeeze, and although shares short of the float stand at 16.98%, the interest across online communities remains strong.  

Throughout the COVID-19 pandemic, GME closed several brick-and-mortar stores in a transition toward more ecommerce solutions, and has completed at least two programs of share offerings since April 2021. With the accumulated cash, the company has invested in new fulfillment centers, one in Nevada and one in Pennsylvania.  

The four-star analyst did note that GameStop’s management had in fact not provided guidance for the upcoming Q3 or for the end of FY2021, leaving room for speculation on the matter.  

On TipRanks, GME has an analyst rating consensus of Moderate Sell, based on 2 Hold and 3 Sell ratings. The average GameStop price target is $88.33, reflecting a potential 12-month downside of –55.67%. GME closed trading Tuesday at a price of $199.24 per share.  

Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article

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