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GameStop shares fell 20.2% to $ 145.05 at noon trading.
Michael M. Santiago / Getty Images
GameStop
the stock fell sharply on Wednesday after the company’s fiscal results in the fourth quarter disappointed analysts. There is also another elephant in the room: the company plans to sell more shares, which could dilute its shares.
Shares of GameStop (ticker: GME) closed up 33.8% at $ 120.34. The S&P 500 index fell 0.6%, while the index
Dow Jones Industrial Average
it ended flat.
In a filing with the Securities and Exchange Commission, GameStop said it was evaluating whether or not to increase the size of its previously announced $ 100 million stock exchange program. The company announced the ATM program in December, with Jefferies acting as a sales agent. The company said it did not sell shares because its valuation increased.
GameStop shares received a mix of downgrades, target price reductions and increases from analysts following the report. “Many on Wall Street have wondered why GameStop did not make an ATM transaction to take advantage of the high stock price,” wrote Joseph Feldman, an analyst at Telsey Advisory Group. “The answer may be that its balance sheet is in excellent shape, with cash and cash equivalents of USD 635 million (including restricted cash of USD 110 million) and debt of USD 363 million at the end of 2020. The new comment appears to be a signal that an ATM transaction could be on the way. ”
On a Tuesday, Feldman had the highest target price listed by FactSet. He reduced it to $ 30 from $ 33, calling the event “anti-climatic.” On the other hand, Jefferies analyst Stephanie Wissink raised her target by 1.066% to 175 USD. This is the new Street-High, in case of doubt.
Wissink argued that the moves by Chewy co-founder and GameStop board member Ryan Cohen to turn the company into a larger technology firm justify a completely different valuation method. The company’s earnings launch was associated with another trio of e-commerce fund hires, including
Amazon
alumna Jenna Owens as its next chief operating officer.
Wissink wrote that he has moved from basing his earnings on interest, taxes, depreciation and amortization, or Ebitda, to a multiple of sales considering switching to e-commerce.
She also points out that GameStop has the potential to help grow non-fungible chips or NFTs and host affordable content streams.
“As a result, we expect store closures to persist and sales to be transferred to dot com,” Wissink wrote. “The overall rate may decrease, but the dollar value of sales should increase if non-retail flows are made.”
S&P Global Ratings analysts Mathew Christy and Andy Sookram wrote in a note on Wednesday that they believe the change will involve considerable execution risks and possibly a significant increase in its capital investment. “The recent rise and volatility of GameStop stock prices have not fundamentally affected us in terms of its business or the risks the company faces,” they wrote. “However, we note the potential financial flexibility offered by improving the position of the equity market if it has chosen to raise additional capital to reposition its business or reduce its debt.”
BofA Global Research analyst Curtis Nagle maintained its $ 10 price target and Underperform rating. He notes that while GameStop’s $ 1.34 adjusted earnings per share exceeded its estimate of $ 1.22, he notes that the pace was driven by a large fiscal credit in that quarter. Ebitda lowered its expectations by 66%.
“We continue to be very skeptical about GME’s efforts to address its long-standing problem of digital disintermediation and the fact that its core market in new and used physical console games is shrinking at a rapid pace,” he added. Nagle. “GME has also called for capitalizing on existing digital assets, such as its PowerUp rewards program, but this has seen its commitment decline for years.”
Wedbush analyst Michael Pachter downgraded his GameStop rating to Hold’s Underperform, but raised his target price to $ 29 from $ 16. Although he still believes that GameStop is well positioned to benefit from the new consoles from
Sony
and
Microsoft,
he says the short pressure has caused the stock to rise to “levels that are completely disconnected from the fundamentals of the business”.
“Our downgrade does not reflect our view of the company’s management, which remains very high; rather, it seems that the “real” value of GameStop shares (the price desired by buyers are willing to pay in the open market) far exceeds the “fundamental” value, we believe that investors who expect a financial return can reasonably expect “. he wrote.
Write to Connor Smith at [email protected]