TMeme stock momentum has returned, which is what GameStop (GME) 60% higher in the last thirty days. Its stocks, which have soared 1270% year-to-date, are up 1500% in the past six months. But investors want to know if the company has a working business model that goes beyond the social media-driven stock mania.
The explosion in the stock caused by Reddit and various subsequent declines suggests fundamentals are not playing a role right now. But will they eventually? The company can answer this important question on Wednesday when it presents its results for the first quarter of fiscal year 2021 after the closing bell. The uncertainty on this issue is one reason Bank of America analyst Curtis Nagle, who had an underperform rating and a target price of $ 10 on the stock, recently withdrew his coverage of the company.
“For the past few weeks, GME’s daily trading volumes and Reddit mentions had decreased significantly,” noted Nagle’s GME share price. “In other words, GameStop does not trade on fundamentals and its share price correlates strongly with the number of times its name is mentioned on Reddit becomes. But it’s not all about Reddit. Investors are excited about Microsoft’s new game cycle (MSFT) Xbox and Sony (SNE) Playstation.
According to reports, demand for consoles is currently outstripping supply. Ordinarily, this would bode well for GameStop, but the brick and mortar retailer, often dubbed the “next blockbuster video,” needs to turn its business around quickly to spark interest in online gaming. On Wednesday, investors want that from Ryan Cohen, Chewy (ALL) Founder tasked with turning GameStop into an e-commerce powerhouse. The post-earnings call will be closely watched for comments on expectations for the coming quarters.
For the quarter that ended in January, Wall Street expects the Grapevine, TX-based company to lose 71 cents a share on sales of $ 1.16 billion. Compared to the same quarter last year, the loss was 1.61 US dollars per share on sales of 1.07 billion US dollars. For the full year ending in January, a loss of 69 cents per share is expected, compared to a loss of $ 2.14 per share last year, while full year revenue of $ 5.48 billion year-over-year is down 7 .7% would rise.
The WallStreetBets community is largely credited with GameStop’s stock performance. The company has experienced declining sales for the past four years while posting losses of over $ 1.2 billion in the past two years. Losses are expected over the next few years due to the fact that video games are downloaded online rather than buying the physical discs. And here the arrival of Chewy founder Ryan Cohen is magnified.
That shift has begun, as evidenced by a 175% increase in global e-commerce sales to $ 720 million in the fourth quarter. That total accounted for 34% of consolidated sales in the fourth quarter, compared to just 12% in fiscal 2019. In particular, e-commerce sales increased 191% in 2020 compared to 2019, with 5,000 physical stores, it is clear that significant progress is being made.
The enormous total number of branches in and of itself poses a challenge in downsizing. But the company must show on Wednesday that it is up to the challenge and has more value beyond the recent social media craze.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.