GameStop May be Down—Way Down—But They Are Not Quite Out

GameStop May be Down—Way Down—But They Are Not Quite Out

Analysts who have offered a 12-month price target on GameStop Corporation (NYSE: GME) suggest a median target of $16, with a low estimate of $6 and a high estimate of $26. the current price is $29.19, which sits in the lower quarter of the 52-week range of $19.40 to $63.92.

This analysis has resulted in a Moderate Sell or HOLD rating. Some analysts seem to believe the stock will continue to drop before showing any signs of recovery, which could be worth holding out for if you can afford it. Otherwise, this may be a good time to sell before the stock can run into negative territory (which is, unfortunately, also a possibility).

New Leadership Struggles To Satisfy Investors

GameStop has garnered a great deal of investor interest over the past few years. This interest was piqued particularly after the company appointed two new executives last year: Ryan Cohen as Chairman and Matt Furlong as CEO. The eager pair has pursued expedited growth through merchandise expansion and heavy e-commerce investments, as well as launching a non-fungible token (NFT) marketplace and other cryptocurrency-related projects.

With this effort, the two-man tea has attempted to market GameStop, to their investors, as a kind of modern transformation story. Unfortunately, the stock does not appear to be performing in a way that resembles the resurrection they likely promised.

Earnings Sink Year Over Year

For example, Earnings Per Share (EPS) at the end of the last year (2021) dramatically failed to meet the range, let alone beat the consensus estimate. In Q4 alone, the reported earnings of -$0.47 couldn't even approach the $0.07 to $0.31 range. These huge losses continued into the new year, where the [2022 Q1] consensus estimate of -$0.36 sat near the range median, but the reported earnings of -$0.52 could not keep pace. Although the -$0.35 reported earnings for 2022 Q2 did not beat the estimate, it indicated some recovery as it did satisfy the range.

Annually, earnings per share tell a more concrete story of decline because even though reported earnings consistently satisfied the range, the estimates have been lower every year since 2018. Actually, 2018 was the last year that Game Stop had a positive annual earnings estimate range, with a reported EPS of $0.68, which barely beat the estimate.

2019 also had positive earnings, actually beating the range with a reported EPS of $0.06. However, the range fell into negative territory. This continued into 2020, where the range was fully negative and the reported EPS satisfied the -$0.54 estimate. The downward trend escalated into 2021, with the -$1.14 reported EPS nearly tripling the negative estimate.

Sales Suggest A Possible Recovery

Sales estimate trends appear to somewhat align with what we see from earnings. The results, however, can be dramatically different. In Q3 2021, for example, reported sales ($1.3B) beat the consensus estimate and met the top of the range. In the fourth quarter, the estimate interval mirrored that of the EPS interval for Q3 and Q4 but instead of sinking far below the range, the reported Q4 sales of $2.3B beat the range slightly. Fortunately, by Q1 2022, $1.4B in sales met the top of the range again but dragged again in Q2, with sales of $1.1B failing to meet the range.

The annual sales numbers mirror that of annual earnings in some ways too. For one, while reported sales consistently met the range between 2018 and 2021, the numbers bounced back last year. So while earnings have sunk, sales have improved: actually beating the estimate in 2021, coming in at $6.0B. Still, while recovery is implied, this is far below the $8.3B in reported sales for 2018.

Overall, while GameStop's core business—video game consoles and software—continues to diminish, sales are surprisingly up. Specifically, the firm posted a major loss in the first quarter, but sales grew 8 percent on the year. This is another reason analysts suggest a turnaround is coming.

Niche Retailer Struggles Against Big Box Competitors But Still Has Foothold

Even though GameStop has transitioned somewhat to memorabilia and collectibles, they are still associated with the gaming community. Unfortunately, their nearest competitors are big box stores like Best Buy (NYSE:BBY) and Target (NYSE:TGT) , both of whom seem to have a more positive short and long-term outlooks. Although Best Buy has been struggling this year, their stock value has been on the rise since July. Target has experienced a similar pattern, slipping in May but quickly showing promise from July on.

In all, then, GameStop's unique retail position could still yield the comeback some are hoping for. But given the exigent circumstance of the current economic climate—supply chain issues, inflation, digitization—the rebound could also take longer than expected, if at all.

Again, this has resulted in a HOLD rating; and a potential MODERATE BUY.

Companies in This Article:

CompanyCurrent PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Target (TGT)$129.90-2.5%3.33%22.13Moderate Buy$179.72
Best Buy (BBY)$73.12-0.1%5.03%12.37Moderate Buy$78.44
GameStop (GME)$24.630.0%N/A-23.91Reduce$5.30

Get New Analyst Ratings Delivered To Your Inbox

Enter your email address below to receive a concise daily summary of analysts' upgrades, downgrades and new coverage with MarketBeat's FREE daily email newsletter.

Most Read This Month

    Recent Articles