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GameStop stock might slip over 50% to match a fundamental value


GameStop stock (NYSE: GME) price plunged another 11% on congressional hearing as senators investigated Reddit day trader Keith Gill’s role and started checking facts related to Citadel’s relationship with the commission-free brokerage Robinhood, which became a key player in a tug of war between Reddit day traders and hedge fund managers.

Whatever will happen as a result of the congressional hearing, GameStop’s stock price will only trade around its fundamental value in the long term.

The video gaming retailer, which recently expressed plans to restructure its business model, can generate positive revenue growth and earnings. Its shares are currently trading around $40, up significantly from pre short squeeze range of $15.

GameStop stock performance. Finviz chart. See more stocks here.

GameStop stock could trade around $10 to $20 range

Shares of the video gaming retailer are likely to fall further to trade around its pre-short squeeze level. This is because its financial numbers and future fundamentals are not backing the $40 stock price. Its revenues fell 30% in the latest quarter despite a 257% increase in e-commerce sales, while loss per share came in at $0.53.

Although the management expects to generate positive year-over-year revenue growth for the December quarter, easing social restrictions could slightly fade video gaming demand in 2021 and pressure revenues.  

The company has aggressively been working on restructuring strategies due to increasing pressure from major shareholders. RC Ventures Ryan Cohen, the co-founder and former CEO of e-commerce company Chewy, continues pressing the management for closing retail stores and thinking more about digital sales trends.  

On the other hand, the valuations are significantly high based on its current share price. GameStop stock is trading around 400 times to earnings and 8 times to book value compared to the industry average of 28 and 4 times, respectively.     

After pricing in prospects for strong December quarter sales, Bank of America analyst Curtis Nagle has provided a $10 price target and expects the stock to trade in its normal range once the buzz ends.

Meanwhile, Wedbush analyst Michael Pachter has doubled the price target to $16, saying GameStop will return to profitability relatively soon.

Overall, GME’s price target from Tipranks analysts averages at $14 for the next twelve months.

Disclaimer: The opinion expressed above is just for information purpose and do not constitute investment advice.

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