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No one can argue that GameStop
GME,
isn’t in a better position than it was one year ago, but whether the OG meme stock is worth its current price will be a white hot topic of debate when the videogame retailer announces earnings after Wednesday’s closing bell.
GameStop is expected to report a 20% gain in revenue and a second-quarter loss of 67 cents a share according to FactSet consensus estimates. Both reflect a much rosier debt and growth picture compared with the loss of -$1.40 per share that the company reported in the same quarter of 2020, beleaguered by a brick and mortar business plan and substantial debt.
Much of that comeback has been fueled by the troubled retailer becoming the biggest name in meme stocks after the social media posts of Keith Gill aka “the Roaring Kitty,” keyed a surge of interest in heavily-shorted GameStop shares after the investment of Chewy.com co-founder turned activist entrepreneur Ryan Cohen.
Once retail investors took control of the stock price, GameStop spiked more than 4,600% in January at the height of an epic short squeeze that birthed similar moves in AMC Entertainment
AMC,
BlackBerry
BB,
and others. Shares are still up more than 2,400% year-over-year, while Cohen has become both the company’s chairman and a folk hero on social media where GameStop shares remain something between a financial instrument and an article of faith.
As Cohen has capitalized on the company’s public market mega-froth to create liquidity and pay down debt, the narratives of Wall Street analysts and retail investors have fallen closer in line to one another. But while both parties agree that GameStop’s financial picture is much sunnier than it was a year ago, the two parties remain very far apart on what that should mean for the stock price.
Wedbush analyst Michael Pachter, while agreeing that the company is much healthier than it was this time last year, slapped an “Underperform” rating on GameStop, citing a stock price that he sees as “completely disconnected from the fundamentals of the business.”
Analysts mostly agree with Pachter. Of the five analysts covering GameStop, three rate the stock as a SELL while two rate it as a HOLD.
But retail investors do not seem to agree.
“GME HAS BEEN LOADING BULLETS AND IS READY TO HUNT,” crowed user RealBeltracchi on GameStop subreddit Superstonk.
Elsewhere, Reddit user Contrive went a step further, postulating “What if Cohen became a majority shareholder of Sears and blockbuster and brings them back from the dead merging with Gamestop?”
Cohen’s role in retail investor optimism is hard to overstate, but even that star status is starting to wear thin as retail investors are openly pushing for Cohen to reveal his “grand plan” for the company.
On Reddit and Twitter, users mused that Cohen’s plan will include everything from creating a platform to sell NFTs to a move that would make the company a leader in decentralized finance, perhaps even resulting in GameStop fighting short sellers by introducing a class of stock that uses Blockchain technology, making it harder for shorts to manipulate.
But while Reddit users are clamoring for Cohen to outline the future, Pachter is warning that GameStop zealots should temper their expectations.
“My bias is that the ‘strategy’ is to ‘be like Amazon,’ and I don’t think Cohen can articulate how he will make that happen with a tired brick-and-mortar chain that is losing share to digital downloads,” Pachter said. “My bet is that they will give us nothing.”
Cohen, who has become famous among the GameStop faithful for posting often inscrutable tweets that they can read like virtual tea leaves, has been characteristically coy.
His most recent social media missive, posted Aug/ 27, simply read, “Time for pillow fights and 60s music.”
But even without a clear-cut story from Cohen or his newly installed, Amazon-trained CEO Matt Furlong, many retail investors will likely stick with the stock like they have over the last year, using any positive news to justify their case in HODLing the company’s shares, and the fact that new videogame consoles are on the market could be enough to keep them buying up shares into Wednesday’s earnings.
