GameStop Corp. was demoted on Wednesday to the equivalent of Wedbush analyst Michael Pachter’s selling rating, who praised the board and business outlook but expressed concerns about overvaluation.
The downgrade comes after the video game and the consumer electronics retailer reported late Tuesday Financial fourth quarter profits and sales That missed Wall Street expectations, leading to negative comments from analysts.
down 18.4% in afternoon trading following the results, putting them on the fifth straight decline and the biggest one-day sell-off since it plummeted 42.1% on Feb. 4. fell 29.4% in the discount chain, but was still up 45.7% over the previous month.
Pachter has lowered his rating to inefficiency, after being neutral since March 2020. He increased his stock price target to $ 29 from $ 16, but his new target is low. about 80% more than current level.
Pachter said he believes GameStop is set to be the “primary beneficiary” of the new game console launch, putting the company in the right direction to return to full year profit by fiscal 2021. He said the price increase target reflects “performing excellent” by managing in a “extremely difficult” competitive environment. But the share price is too high.
Pachter wrote in a client note: “However,“ the consistently high, prolonged short squeeze seen in recent months has caused stock prices to skyrocket to levels completely unrelated to mechanical principles. copy of the enterprise ”.
Shares rose 1.625% in January and have soared 3,463% in the past 12 months, because the so-called meme stocks was the poster child of the frenetic trading caused by social media surrounding stock shortages. Meanwhile, the S&P 500 index
has increased 60% in the past year.
Of the seven analysts surveyed by FactSet, who included GameStop, four had a comparable selling rating while others were on par with hold. Average price target is $ 40.64, or about 73% lower than current price.
BofA Securities analyst Curtis Nagle was one of GameStop’s bears, and he reiterated his underperformance rating and $ 10 price target for stocks following the company’s earnings report.
He says adjusted earnings per share of $ 1.34 is well below consensus expectations, even if the result is driven by a large tax credit, which the company reports is 69.7. millions of dollars. Meanwhile, Nagle says pre-interest income, taxes, amortization and amortization (EBITDA) is “significantly understated”, as its base return is 66% lower than an estimated $ 144 million. your.
Nagle said that while GameStop (GME) has taken steps towards change, such as adding new board members and senior management with digital experience, the company has provided ” There are very few “details” about its plans, in addition to product line extensions for the “adjacent” game category, “better customer experience, technology and perfection.
Nagle wrote in a research report: “We continue to be very skeptical of GME’s efforts to tackle the long-term problem of digital middleman loss and the fact that their core market in the field. New and pre-owned gaming consoles are shrinking at a rapid rate. “GME is also calling for leveraging its existing digital assets like the PowerUp rewards program, but this has reduced participation for years.”
Meanwhile, credit analyst Mathew Christy at S&P Global was also disappointed with GameStop’s results, given the year-round operating net loss due to continued operations of $ 214.6 million, more than twice as high. with his forecast of a loss of about $ 100 million.
“We expect to see better performance in the quarter due to the prediction that their customers will begin to meet their pent up demand for the latest generation of consoles,” writes Christy. released in late 2020.
Business risk is still high, he said, as the company’s intention to “reinvent itself with digital focus” would involve “large execution risks and potentially a significant increase in Invest your own capital. “
S&P Global has a GameStop credit rating at B-, which is six deep into the level of speculation, or “junk” territory.