GameStop (NYSE:GME), video game retailer, and the original “meme stock”, surged upward another 6.8% in premarket trading today. It's held onto some of those gains going into this morning's session as well. The company picked up its gains after noting that it had completed a previously-announced sale of five million shares of common stock. While investors are frantically picking up more shares of GameStop, however, the broader financial analyst community is advising the exact opposite course of action.
GameStop Stock Completes Massive Sale
The five million shares, based on a report from Jefferies Financial Group, raised a combined total of $1.13 billion for the company. Further reports note that GameStop looks to use its new supply of cash for building on previously-revealed growth initiatives as well as keeping its balance sheet strong. One of the company's major investors, Ryan Cohen, has been working to push GameStop into at least one major initiative: focusing harder on e-commerce rather than on physical storefronts.
The shares sold for an average price of $225.20, based on Bloomberg calculations, and given that GameStop's 50-day moving average is $193.09, that represents some further potential gains to come. Originally, GameStop had planned to sell up to five million shares on an at-the-market (ATM) offering, which is regarded as a strategy that's seldom used, historically.
However, given that GameStop has had incredible success with retail investors lately—that “meme stock” status at work—specifically targeting the retail trading side of things with an ATM offering is increasingly looking like a viable strategy. This is actually the second time that GameStop has made such a release; the last run in April brought in $551 million for the company.
GameStop stock isn't trading on its meme stock status alone, however; following the recently-concluded Electronics Entertainment Expo (E3) event, GameStop offered up a list of the 10 most pre-ordered games the company saw in the wake of the announcements. Featuring titles that will emerge both this year and next, the list was very heavily weighted toward Nintendo (OTCMKTS:NTDOY) releases, including the current leader, “Metroid Dread”.
What Are Financial Analysts Saying About GameStop Stock?
While retail investors are rushing in to GameStop stock, the broader financial analyst community—as revealed by our latest research—is recommending the exact opposite plan, and in fairly broad numbers. GameStop currently has a consensus rating of “sell”, and has had that rating for the last two years now.
Those looking to have Gamestop stock explained will find that, a year ago, the company had two “hold” ratings and six “sell” ratings to its credit. Six months ago, that got just a bit more bearish as the company slipped to one “hold” and five “sell” ratings. Today, we stand at two “hold” and five “sell” rating, which is a bit more bullish than a year ago, but not by much.
The GameStop price targets, meanwhile, expect disaster. The current consensus price target is $21.40, with a high of $50 and a low of $5. With GameStop stock currently selling at $210.39 as of this writing, the downside risk is enormous.
It's interesting to note here that that high price target was actually recently established. Wedbush put that target out back on June 10, when it raised its target from $39 to that new high of $50. As for other recent developments, there haven't been many; back in April, Credit Suisse led off the month by reiterating its “sell” rating, and Ascendant Capital Markets cut from “hold” to “sell.”
However, it's also worth noting that those who have bet against GameStop in the past haven't seen their bets play out as expected. White Square Capital, a UK hedge fund that heavily bet against GameStop during its January rally, announced just hours ago that it would shutter its main fund and return capital accordingly. White Square wasn't the only fund that gambled and lost against GameStop, though; Melvin Capital and Light Street Capital were both said to have lost big against GameStop. In Melvin Capital's case, however, the company landed a $2.75 billion investment from Point72 Asset Management as well as Citadel.
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