Gamestop – GameStop Shares Just Got a Wall Street Upgrade. But It’s Hardly What You Think.
shares have started the week with a Wall Street upgrade. That’s the good news.
The bad news for some of its most enthusiastic investors is that the move still leaves shares many miles from where they are now. The analyst, Edward Woo of Ascendiant Capital Markets, lifted his 12-month price target from $10 to $25—GameStop shares finished last week at $191.23.
“Due to the popularity of GameStop on Reddit chat boards and with Robinhood retail investors, its shares no longer trade on traditional fundamental valuations or metrics, but on retail investors sentiment, hope, momentum, and the powers of crowds,” Woo told clients in a note on Monday.
“This makes short-term price movement forecasts nearly impossible (and we acknowledge can drive shares much higher), but we believe that over the long run (over one year) GameStop’s current elevated share prices will come back down to match its current weak results and outlook,” he wrote.
GameStop shares dropped 5% last week, though the stumble was largely halted when Reddit boards and
comments stepped up to rally the stock on Friday. Also joining in those gains were shares of meme stock movie-chain operator
For the most recent quarter, GameStop shares rose 12%, but have already given back most of that just in July. That is versus a first-quarter rally of 900% as meme stocks exploded onto the investment scene.
As for the boost in share prices, Woo cited results from early June that showed first-quarter upside and an improved outlook for 2021 as new console sales stayed strong. He lifted estimates for full-year 2021 revenue to $5.22 billion from $4.87 billion and is looking at a narrower loss of $1.26 for the period versus a previous $2.25.
Much of GameStop’s share price has been driven by its chairman and biggest shareholder Ryan Cohen, who led a drive to get in new management and to change the strategic focus. And while those moves have “greatly increased the odds” the company can turn into a successful e-commerce company, “we are still very early in the transformation and investors are likely facing a very high risk/rewards scenario,” said Woo.
Despite the price hike, the analyst is maintaining a sell rating on GameStop. “We believe our rating and price target reflects the company’s significant digital and execution risks offset by the small chance for a highly successful and valuable company transformation,” he said.