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Shares of GameStop fell 20.2% to $ 145.05 during noon trading.
Michael M. Santiago / Getty Images
GameStop
shares were down sharply on Wednesday after the company’s fourth-quarter fiscal results disappointed analysts. There’s also another elephant in the room: the company is considering selling more shares, which could dilute its shares.
Shares of GameStop (ticker: GME) closed up 33.8% to $ 120.34. The S&P 500 index fell 0.6%, while the index
Dow Jones industrial average
finished flat.
In a presentation to the Securities and Exchange Commission, GameStop said it has been evaluating whether or not to increase the size of its previously announced $ 100 million stock market program. The company had announced the ATM program in December, with Jefferies as its sales agent. The company said it did not sell shares as its valuation increased.
GameStop shares received a mix of rebates, target price cuts and analyst rises after the report. “Many on Wall Street have wondered why GameStop has not made any ATM transactions to take advantage of the high stock price,” wrote Telsey Advisory Group analyst Joseph Feldman. “The answer may be that its balance sheet is in good shape, with cash and cash equivalents of $ 635 million (including restricted cash of $ 110 million) and debts of $ 363 million at the end of 2020. The new comment it seems to be a signal that an ATM transaction could occur “.
Looking ahead to Tuesday, Feldman had the highest price target shown on FactSet. He reduced its value to $ 30, from $ 33, and defined the event as “anti-climatic.” On the other hand, Jefferies analyst Stephanie Wissink raised its target by 1.066% to $ 175. This is the new Street-High, just in case.
Wissink argued the moves by Chewy co-founder and GameStop board member Ryan Cohen to transform the company into a more tech-savvy company that would guarantee a completely different valuation method. The company’s earnings launch was combined with another trio of hiring with an e-commerce background, including
Amazon
student Jenna Owens as the next director of operations.
Wissink wrote that he went from basing his goal on earnings before interest, taxes, depreciation and amortization, or Ebitda, to a multiple of sales that takes into account the shift to e-commerce.
It also states that GameStop has the potential to participate in increasing non-consumable tokens, or NFTs, and hosting affordable content streams.
“As a result, we expect store closures to continue and sales to move on as soon as possible,” Wissink wrote. “Total revolutions may go down, 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 Wednesday that they believe the change will pose significant execution risks and possibly a significant increase in their capital investment. ” risks, ”they wrote.“ However, we note the potential financial flexibility offered by its improvement in the equity market if it chose to raise additional capital to reposition its business or reduce its your debt “.
BofA Global Research analyst Curtis Nagle kept his $ 10 price target and score lower. He noted that while GameStop’s adjusted earnings per share of $ 1.34 exceeded its estimate of $ 1.22, he noted that the pace was driven by a large fiscal credit during the quarter. The company’s Ebitda exceeded its expectations by 66%.
“We remain very skeptical about GME’s efforts to address its long issue of digital disintermediation and the fact that its core market in new and second-hand physical console games is shrinking at a rapid pace,” Nagle added. “GME also claimed to leverage its existing digital assets as its PowerUp rewards program, but this has seen its commitment dwindle for years.”
Wedbush analyst Michael Pachter lowered his rating on GameStop to drop from Hold, but raised his target price to $ 29, from $ 16. While he still thinks GameStop is well positioned to benefit from the new consoles
Sony
i
Microsoft,
he says the small squeeze has increased stocks to “levels completely disconnected from the fundamentals of the business.”
“Our reduction does not reflect our opinion on the management of the company, which remains very high; rather, it seems that the “real” value of GameStop shares (the price that buyers are willing to pay on the open market) far exceeds the “fundamental” value that we believe investors expecting a financial return can reasonably expect. “, he wrote.
Write to Connor Smith at [email protected]