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Shares of AMC Entertainment Holdings Inc. and Bed Bath & Beyond Inc. soared in premarket trading Wednesday, as fellow “meme stock” GameStop Corp. skyrocketed after the consumer electronics and video games seller reported a surprise fiscal fourth-quarter profit.
GameStop’s
GME,
stock extended its sharp bounce Tuesday off a two-year low after its earnings report, FactSet data show. The video game retailer’s shares surged 56% premarket, while Bed Bath’s
BBBY,
stock shot up 7.1%, after bouncing 1.0% Tuesday off Monday’s record-low close of 81 cents, but was still headed for a sub-$1 open. AMC’s stock climbed 9.3%, after having tumbled 38.2% month to date through Tuesday. And AMC’s
AMC,
preferred equity units
APE,
known as APEs, jumped 6.8% ahead of the open, after they rallied 13.8% over the past two sessions, but were still down 28.5% month to date through Tuesday.
GameStop’s fourth-quarter results prompted Wedbush to raise its price target for the company to $6.50 from $5.30 Wednesday. “GameStop delivered a profitable holiday quarter, as it had done in every year of its existence except for 2021,” wrote Wedbush analyst Michael Pachter, in a note released Wednesday. “The lack of profitability last year caused us to expect that GameStop couldn’t manage expenses, and the company surprised us by doing so exceedingly well.”
Related: GameStop stock soars nearly 50% on surprise quarterly profit, higher sales
On Wednesday the video game retailer said it has completed most of its upgrades related to infrastructure, systems, shipping capabilities, and online and mobile platforms. GameStop also pointed to cost cutting initiatives and headcount reductions it initiated during the fiscal year to increase operational efficiency.
The company ended the quarter with cash, cash equivalents and marketable securities of $1.4 billion.
Webush does not expect GameStop’s one-time working capital changes to be sustainable moving forward. “With that said, the lower cost structure lessens the risk of ongoing losses, and we expect GameStop to generate cash losses of $50 million per quarter going forward, an improvement over the $100 million quarterly cash burn we had modeled before,” he wrote. “As such, GameStop’s $1.4 billion of net cash should last it several more years as its management seeks new ways to revive a declining business.”
Related: AMC ‘positioned really well’ for 2023, says Wedbush
But Pachter also asked whether GameStop’s “victory” is “fleeting,” citing hurdles in the company’s path. “Longer term, the company cannot save its way to prosperity as new-gen hardware sales inevitably cool off and physical sales of video games continue on their multi-year downward trajectory, with that negative momentum buoyed by the growing appeal of mobile and subscription offerings for gamer hours and dollars,” Pachter added. Wedbush maintained its underperform rating for GameStop.
Of two analysts surveyed by FactSet, one has a hold rating and one has a sell rating for GameStop.
Additional reporting by Claudia Assis.
