GameStop New York Stock Exchange: GME Shares rose after the third quarter release, but so what? The report included a surprise profit, but the underlying reason and business metrics are in line with the trend. This company continues to contract and exhaust itself at the expense of investors. It only benefited in the third quarter due to increased interest income associated with its cash accumulation.
The company has raised billions in 2024, shoring up the balance sheet for its yet-to-be-determined turnaround efforts.
GameStop today
(As of 11/12/2024 ET)
- 52 week range
- $9.95
▼
$64.83
- P/E ratio
- 223.09
- Price target
- $10.00
The bottom line is that shareholder value is eroding, the underlying business is losing money, and the stock is ridiculously overpriced. The only thing that is certain is volatility, but the market is leaning towards lower prices, which is the most likely scenario in 2025.
The only upside for GameStop is its cash balance, which has swelled 500% over the past year. Now over $4.6 billion, the interest income on the balance is enough to keep the process going until something else happens. However, with the core business losing money and net income weak at $17.4 million, the company doesn’t have much room to maneuver without eroding the balance.
The bad news is that the accumulation of cash was due to share sales, which increased the number of shares by 23% on average in the third quarter and the amount issued by 43%, which severely impacted shareholder value. The net result on the balance sheet is a 2.8x increase in total equity but a decline in book value to approximately $11, 50% below the pre-report market price.
GameStop: A business that revolves around exchange
GameStop’s third-quarter results were mixed compared to consensus expectations reported by MarketBeat, with revenues below targets and profits above. The reason for superior bottom-line performance is addressed; The weakness in revenue was caused by contraction in all three retail operating segments, led by a 27% decline in the core hardware business.
Given gaming industry trends, GameStop’s total sales are now a fraction of what they once were and will likely continue to shrink. Game makers are facing headwinds, including higher development costs and waning interest after the pandemic, while consumers are spending more time outdoors, tired of endless in-game ads and expenses.
Video games are still very popular, but the market is largely returning to normal, and core gamers are more price conscious than ever.
The business margin remains weak, and there are risks to the profit outlook. The company reduced its SG&A expenses, which were not enough to generate operating profit. Operating losses exceeded $33 million, or about 61% of interest income, more than doubling as a percentage of revenue compared to last year.
In terms of risks, the FOMC is on track to cut interest rates in 2025 if at a lower pace than previously expected, effectively reducing the company’s ability to generate income from interest payments. In this scenario, GameStop has bought some time, but the clock is still ticking, and a turnaround plan must be put in place.
The sell side poses risks for GameStop
GameStop stock forecast today
$10.00
-65.54% downsideHe sells
Based on 1 analyst ratings
| High expectations | $10.00 |
|---|---|
| Average expectations | $10.00 |
| Low expectations | $10.00 |
GameStop stock forecast details
Sell-side interest in GameStop is mixed, with only one analyst rating the stock a Sell, while institutional interest is the opposite. Institutions have bought this stock on balance throughout 2024, supporting the market within its trading range, and Q4 activity has risen to a high level in line with the stock price rising to new highs.
The market is now above one resistance target but still below the critical target at the midpoint of the range. If institutions continue to buy this stock, it will likely rise; The risk is that they will not, and may even start, selling, increasing downward pressure on the market.
Regarding short interest, the ratio has declined from its peak, primarily due to an increase in the number of shares, but rose at the end of November with short sellers on the rise.
(GME) price chart for Wednesday, December 11, 2024
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