Earnings disappoint, but will GameStop stock (GME) investors give up?

Posted: 10 December 2021 2:36 pm
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The meme stock’s price pulled back 14% after a disappointing earnings call.

Retail investors have supported GameStop (GME) since it surged almost a year ago, driven by a battle between buyers and short sellers. But after an earnings call this week, the stock fell off as much as 15%. Are we seeing a turning point?

GameStop saved by the meme-stock phenomenon

GameStop’s shares exploded in January when retail investors on Reddit saw hedge funds heavily shorting the stock. Many of those believed the hedge funds used naked short selling — the practice of selling short more stocks than there are available — which is illegal. Shares rose from below $20 to as high as $483, driven both by new investors and those hedge funds buying shares to cover short positions.

Retail investors didn’t just buy the stock; they HODLed (“hold on for dear life”). The meme stock movement basically saved GameStop from bankruptcy.

The stock since has stayed around $170

Most of the meme stocks from early this year saw their share price return to pre-meme stock levels or slightly higher. GameStop has consistently averaged about $170, and peaked above $180 on Dec. 7. This is way above the price before the surge, which was just under $20 on January 12, 2021.

The reason for that is likely the “hodling” of retail investors, meaning those who bought shares and refused to sell them even as the price pulled back. This creates little downward pressure as no one is bidding down the price.

What’s more, GameStop managed to attract executives from major retail and e-commerce firms, such as Matt Furlong from Amazon. With Furlong acting as GameStop’s CEO, the company said it planned to start digitizing its business and exploring opportunities in blockchain technology, non-fungible tokens and Web 3.0 gaming.

Why earnings day disappointed

GameStop reported a fiscal third-quarter adjusted net loss of $1.39 per share or $105.4 million. Sales came in at $1.3 billion — a 29% increase year over year. Analysts expected an adjusted net loss of 52 cents a share with sales of $1.19 billion.

Furlong also failed to provide specific plans about the company’s planned digital transformation, and he declined to answer questions from analysts during the conference call.

After the call, the stock fell off as much as 15%, falling close to a support at around $150. Investors can see a support zone as the chance to get in at a “reasonable price.” A break of the $150 price zone could be a sign for investors to worry.

The stock did fall below $150 in August, then bounced up. It was also rising Friday afternoon after falling just below $150.

Analysts have different perspectives

Wedbush’s analyst Michael Pachter cut his price target to $45 from $50 because of the lack of GameStop’s clarity and guidance for the future. Jefferies analyst Stephanie Wissink also cut her target to $180 from $190.

Wissink pointed out that the company’s focus on gaming hardware and less on games is a good sign. She also believes the digital transformation would be positive for the company.

The value of any investment can go up or down depending on news, trends and market conditions. We are not investment advisers, so do your own due diligence to understand the risks before you invest.

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