GameStop (NYSE: GME) stock price soared substantially since the beginning of this month despite missing second-quarter revenue and earnings estimates by a wide margin. The shares of the gaming company jumped 55% in the last five days alone, accelerating monthly gains to 96%.
The rally in share price is supported by price target upgrades from two major firms. Jefferies has raised GameStop stock price target to $8 with a Buy rating while the Telsey Advisory Group sets a $10 price target with an Outperform rating.
The share price rally is also backed by reports that a large institutional investor RC Ventures is aggressively buying GameStop stock. RC Ventures now holds a 10% stake in GameStop. Its shares are up 55% since the beginning of this year. The majority of share price appreciation occurred since the beginning of this month.
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Moreover, reports of strong video game sales added to investor’s sentiments. Video game sales grew 26% year over year in August. Sales were up 26% in June and 32% in July.
The company’s strategy of restructuring its business model as well as prospects for new gaming hardware releases contributed to share price gains. They plan to close or transfer their stores to new locations in order to improve revenue and reduce costs. It has closed 10% of stores in the latest quarter.
Its second-quarter revenue of $942 million dropped 27% from the past year period and missed analysts’ expectations by $76 million. Its comparable-store sales fell 12% year over year in the second quarter. On the positive side, its global e-commerce sales grew 800% from the past year period while operating expenses declined by $133.7 million. It has generated $181 million in free cash flows.
“We believe the actions we are taking to optimize the core operations of our business by increasing efficiencies and creating a frictionless digital ecosystem to serve our customers, wherever and whenever they choose to shop.” George Sherman, GameStop’s chief executive officer said.
