Case Study: GameStop (GME) stock according to high performing analysts
Key Points
Performance
GameStop shares rose by 46.90% this week, pushing their year-to-date gains up to 39.42%. This compares favorably to the S&P 500, which is up by 3.84% on a year-to-date basis thus far.
Event & Impact
GameStop posted fourth quarter earnings results this week, beating Wall Street estimates on both the top and bottom lines. During Q4, GME’s revenue totaled $2.23 billion, beating Wall Street’s consensus estimate by $50 million. GameStop’s Q4 non-GAAP earnings-per-share came in at $0.16, beating Wall Street’s consensus estimate by $0.29/share.
Noteworthy News:
GameStop posted a surprise profit during Q4, inspiring a short-squeeze rally late in the week. As of the market close on Friday, 21.3% of GME’s float was made up on short interest and therefore, we saw an analyst predict that the short-squeeze rally may not be over.
Nobias Insights
70% of recent articles published by credible authors focused on GameStop shares offer a “bearish” bias. Neither of the two credible Wall Street analysts covering GME believe shares are likely to rise in value. The average price target being applied by these credible analysts is $15.65 ,implying downside of approximately 34.7% relative to the stock’s current share price of $23.98
Bullish Take Dan Berthiaume, a Nobias 4-star rated author, said, “GameStop Corp. posted its first quarterly profit in two years even as its sales slipped.”
Bearish Take Bernard Zambonin, a Nobias 4-star rated author, said, “Long-time bear Michael Pachter of Wedbush wrote before the earnings announcement that he expected "long-term headwinds [to] include potential liquidity challenges and changing gamer preferences, with greater appetites for cloud, digital mobile, and subscription."’
NKE Mar 2023
GameStop (GME), a company famous for being the posterboy of the “meme stock” craze of 2020/2021, posted its Q4 earnings this week, surprising Wall Street in a major way. GameStop posted a positive earnings-per-share figure during a quarter where Wall Street expected to see more losses.
GME’s Q4 non-GAAP EPS came in at $0.16/share, beating Wall Street’s consensus estimate of -$0.13/share by $0.29/share. These surprise profits sparked a 46.9% rally this week. Even after this massive bounce, GameStop shares are down by 32.64% during the trailing 12 month period. But, with the potential for another large short-squeeze rally in place, investors are wondering, is this meme stock back on the menu?
Bullish Nobias Credible Analysts Opinions:
Dan Berthiaume, a Nobias 4-star rated author, highlighted GameStop’s Q4 earnings results in an article that he published at Chain Store Age this week. He wrote, “GameStop Corp. posted its first quarterly profit in two years even as its sales slipped.”
“The video game and electronics retailer reported net income of $48.2 million for the quarter ending Jan. 28, 2023, compared to a net loss of $2.25 billion in the same quarter a year earlier,” said Berthiaume. He continued, “Earnings per share were $0.16, compared to a loss per share of $0.49. GameStop achieved this turnaround in profitability as net sales slipped year-over-year to $2.22 billion from $2.25 billion.”
Berthiaume also broke down the company’s full-year results. He said, “GameStop also reported results for the full fiscal year 2022, ending Jan. 28, 2023. The retailer was able to reduce its net loss year-over-year to $313.1 million from $381.3 million. Loss per share dropped to $1.03 from $1.31.”
“However,” Berthiaume added, “net sales also dropped 1% to $5.92 billion from $6.01 billion the prior fiscal year.” Lastly, Berthiaume added, “GameStop said it also completed the majority of implementations and upgrades related to its infrastructure, systems, shipping capabilities, and online and mobile platforms; and initiated cost-cutting initiatives and headcount reductions over the course of the year in an effort to increase operational efficiency.”
Bearish Nobias Credible Analysts Opinions:
Bernard Zambonin, a Nobias 4-star rated author, also covered GME’s Q4 results this week in an article published at Newsbreak.com. Zambonin took an in-depth look at the company’s fundamental results.
Looking at GME’s top-line, Zambonin said, “About $1.24 billion came from the company's main revenue driver — hardware and accessories — versus $1.19 billion reported in the same period last year. Collectibles revenues came in at $313.2 million, up about 12% year over year.” He went on to highlight management’s effective cost cutting moves, stating, “GameStop executed well on reducing selling, general, and administrative costs, where the company went from 23.9% of sales to 20.4% — a key to profitability.” Also, he mentioned that like other retailers, GME is working through its post pandemic inventory gluts nicely.
Zambonin wrote, “Inventories were much less bloated compared to the same period last year. GameStop reported $682.9 million in inventory versus $915 million a year earlier.” In his piece Zambonin also put a spotlight on Wall Street’s reaction to GameStop’s surprise profits. He said, “Long-time bear Michael Pachter of Wedbush wrote before the earnings announcement that he expected "long-term headwinds [to] include potential liquidity challenges and changing gamer preferences, with greater appetites for cloud, digital mobile, and subscription."’
“Furthermore,” Zambonin continued, “Pachter added that GameStop shares "remain at trading levels that are disconnected from the fundamentals of the business due to irrational support from some retail investors."’ However, Zambonin noted that even the long-term bear could appreciate GME’s quarter, writing, “While maintaining his "underperform" recommendation on the video game retailer's shares, the analyst raised his price target from $5.30 to $6.50.”
Speaking of Wall Street analysts who appreciated GME’s quarter, in an article that she published this week at Benzinga, Shanthi Rexaline, a Nobias 4-star rated author, highlighted a post-earnings tweet from S3 Partners analyst, Ihor Dusaniwsky.
Regarding GME’s past volatility and the stock’s notoriety as a “meme stock”, Rexaline wrote, “When asked whether GameStop’s stock price is disconnected from fundamentals, Dusaniwsky said the stock price is not much of a function of what the value or earnings are but is what the Street thinks where the price needs to be.”
And, it appears that GME’s profits are pushing those expectations higher. Rexaline noted that Dusaniwsky tweeted, “Release the hounds, let the short squeeze begin,” late Tuesday evening. “He noted that short interest in GameStop — a retailer of video games, consumer electronics and gaming merchandise — is about $946 million, with 56.05 million shares shorted,” she said.
Nicholas Ward is a Senior Investment Analyst at Wide Moat Research. He has spent the last 8 years writing about the stock market at various publications, including Seeking Alpha, The Street, Forbes Real Estate Investor, Sure Dividend, The Dividend Kings, iREIT, Safe High Yield, and The Intelligent Dividend Investor.
“The short interest as a percent of the float is 21.79%,” Rexaline added. She also noted that because of the size of this overall short position, Dusaniwsky predicted that GME’s recent rally would continue. “Expect a wave of short covering tomorrow,” in this Thursday tweet.
Overall bias of Nobias Credible Analysts and Bloggers:
Coming into this week, GME’s share price was in-line with the average price target that credible Nobias analysts had assigned to shares. When the market opened on Monday GME shares were trading for $16.31, which was only a slight premium to the stock’s credible analyst price target of $15.65.
However, after the stock’s 46.90% rally this week, GME’s $23.98 share price now represents a 53.2% premium to that $15.65 figure. In other words, according to credible analysts, GME’s rally this week was irrational. The broader sentiment of the credible author community that Nobias tracks reflects this apparent overvaluation. 70% of recent articles published by credible authors with a focus on GME shares expressed a “Bearish” bias.
Disclosure: Nicholas Ward has no GME position. Nicholas Ward wrote this article for Nobias at their request with the intention of giving investors a balanced perspective based on the writings of Nobias highly rated analysts and bloggers. Nobias has no business relationship with any company whose stock is mentioned in this article and does not have a position in this stock.
Additional disclosure: All content is published and provided as an information source for investors capable of making their own investment decisions. None of the information offered should be construed to be advice or a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. The information offered is impersonal and not tailored to the investment needs of any specific person.
Disclaimer: The Nobias star rating is based on past performance results and is not an indicator of future results. These past performance returns do not represent returns that any investor actually earned. Assumptions made include the ability to purchase the stocks recommended by the author under liquid markets where the transaction would be at the market price for the day. In reality, loss in liquidity may have a material impact on the returns that actually may have been earned. Further, returns are calculated without any including transaction costs, management fees, performance fees or expenses, or reinvestment of dividends and other income. This information is provided for illustrative purposes only.