On Wednesday, GameStop (GME) stock recorded its largest ever one day share haul, surging by a massive 57% in the session. This was followed by today’s 27% jump.
There appears to be some disagreement on Wall Street as to the cause behind the monster moves.
As the stock has recently had extremely high short interest, some have put it down to a short squeeze. While Ihor Dusaniwsky, of predictive analytics company S3 Partners, believes the short covering was partly behind the buying spree, he doesn’t see it as the main reason for the surge. Rather, the reason lies elsewhere.
“GME’s board shake-up and stronger holiday sales is causing a long-buying tsunami, which is the primary factor for the price move,” Dusaniwsky noted.
On Monday, GameStop announced holiday quarter sales increased by 4.8% on a comparable-store basis while the company’s e-commerce sales jumped 308%, although overall sales dropped by 3.1%.
Also, on Monday, the video game retailer announced that is refreshing its broad. The company said it hand RC Ventures – one of its largest shareholders – three new seats on the board of directors. One of these will go to Chewy co-founder Ryan Cohen.
RC Ventures has previously said GameStop should review its strategy and pivot toward becoming more of a digital-centric technology company.
While investors flocked to the stock since the dual announcements, for Wedbush analyst Michael Pachter, the comps figure was “below expectations.”
While Pachter believes GameStop is “well-positioned to be a primary beneficiary of the new console launches,” the outlook remains too cloudy for him to truly get behind the stock at present.
“The global pandemic remains a hurdle, and we expect it to remain a hurdle until the majority of GameStop’s addressable market is vaccinated. That said, we think that is likely to happen sometime around mid-2021, and we expect GameStop to complete its reboot initiative and the expansion of its ecommerce omnichannel solution by that time,” the analyst said. “We have a positive bias, and we think the company is positioned to generate solid profits in 2021 and beyond, but until we have greater visibility, we are unprepared to upgrade.”
Accordingly, Pachter reiterated a Neutral (i.e. Hold) rating on GME shares backed by a $16 price target. Following the recent surge, the figure now suggests downside of ~60%. (To watch Pachter’s track record, click here)
There’s even more downside according to the analyst consensus. The average price target stands at $10.72, indicating ~73% drop from current levels. Based on 1 Buy, 3 Holds and 2 Sells, the stock qualifies with a Hold consensus rating. (See GME stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
