Stock Analysis & Ideas

GameStop Stock: This Bear Finds More Reasons to Growl

The past month has seen several changes take place at GameStop (GME).

For one, the meme stock king announced a four-for-one stock split; on July 18, shareholders received three additional GME shares in the form of a stock dividend. Stock splits have become popular recently (everyone from Amazon to Tesla to Apple has been at it) and while they have no financial impact, they allow investors a lower entry point. Considering GME’s army of retail followers, this could be a move to appeal to its core base.

Beforehand, on July 11, the company launched a public beta version of its NFT marketplace. In terms of early trading volume, so far it appears to be tracking above Coinbase but far below OpenSea.

Wedbush’s Michael Pachter, who’s been bearish on GME since early 2021, thinks it will be at least a few months before it will be possible to determine the extent to which the NFT sales are down to testing by employees and the support of retail investors. In any case, the analyst believes “two potential challenges are largely being ignored: first, the marketplace is likely to attract regulatory scrutiny from FinCEN as a potential money laundering destination, and second, the trading of NFTs is likely to be subject to FINRA regulation as well.”

Zooming out, based on broader trends in the NFT space and console and mobile’s “walled gardens,” Pachter remains “skeptical about the potential for sustained success” of the new NFT marketplace.

While this venture’s viability is called into question, there are other aspects of GameStop which Pachter thinks are more troubling.

Earlier this month the company announced a CFO change which came amidst a wider wave of layoffs. This further confirms to Pachter that all is not well at the videogame retailer.

“We remain concerned that GameStop has not generated net income in any quarter since it replaced its management team, and view the layoffs and weak NFT market as signs that its business will continue to deteriorate for the foreseeable future,” Pachter explained.

In line with his pessimistic approach, Pachter gives GameStop shares an Underperform (i.e. Sell) rating, while his new stock split based $7.5 price target suggests shares will shed 78% of value over the coming year. (To watch Pachter’s track record, click here)

As for the rest of the Street, only one other analyst provided a recommendation on GME over the last three months, which was a Hold. This translates to a Moderate Sell consensus rating. The average price target is $17.50, which represents ~48% downside from current levels. (See GameStop stock forecast 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.

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