‘It’s a Losing Game,’ Says Wedbush About GameStop Stock – TipRanks.com

GameStop (NYSE:GME) stock doesn’t seem to do anything in half measures. Following a long absence, a recent tweet by Roaring Kitty, the person largely responsible for kicking off 2021’s meme stock mania, sent the videogame retailer’s shares stratospheric over a couple of sessions last week.

Spare a thought, however, for those who decided to get in after the stock had surged by almost 180% over those two sessions, as the stock was heading back down almost just as fast over the rest of the week.

The sharp correction continued after the company put the surge to good use when it announced – along with preliminary Q1 results – that it had issued an open market sale agreement, authorizing the sale of 45 million shares.

Even the most based redditor will consider the attendant share dilution from such an act as a reason to un-diamond their hands. However, Wedbush’s Michael Pachter considers it a good move.

“GameStop is capitalizing on a recent spike in share price by prudently issuing shares at a premium, providing itself a greater level of reserves while it struggles to re-focus its business and reverse continuing operating losses,” the analyst explained.

The company will need all the help it can get given its preliminary results. GameStop projected Q1 revenues between $872 and $892 million, falling short of the $1.045 billion consensus and significantly below the $1.237 billion from the previous year. Looking ahead, Pachter expects hardware sales to “decline further” this year.

As for the bigger picture, Pachter sees no reason to believe GameStop can “save its way to prosperity,” with the analyst anticipating the mix of software sales will keep on shifting from the physical to the digital realm. “While there will likely be a new Nintendo console next year and an overall lift in software sales from GTA VI, we think GameStop will see continuing sales declines next year as well,” the analyst went on to say. “Ultimately, the company must deploy its cash productively or continue to hope that it can issue more shares at elevated levels to forestall the inevitable.”

To this end, although Pachter raised his price target from $5.6 to $7, suggesting the shares now have downside of ‘only’ 68%, his Underperform (i.e., Sell) rating stays as is. (To watch Pachter’s track record, click here)

Overall, as the recent rally has shown, GameStop stock might still have plenty of followers amongst the retail crowd, but on Wall Street, Pachter’s assessment aside, no other analysts are currently keeping a tab on its progress. (See GameStop stock analysis)

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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.