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GameStop stock saga continues against market odds

GameStop stock saga continues against market odds

The stock of video game retailer GameStop (NYSE: GME) appears to be rekindling the meme stock frenzy with substantial gains in recent weeks. This follows a prolonged bearish decline chart pattern that persisted for the better part of the year. 

The surge coincides with the company’s unveiling of an executive overhaul, signaling an effort to reverse its fortunes. As of the market close on Friday, December 15, GME was trading at $17.26, boasting impressive monthly gains of about 37% and aiming to breach the $20 level.

GME is trading below the 200-day simple moving average, and surpassing this level is crucial for providing the necessary support to attain the $20 mark. 

GME 30-day stock price chart. Source: Finbold

GME builds on positive results and management change

The stock received a boost after the company announced its quarterly results, revealing a 9% decline in quarterly sales but a reduction in losses. In Q3, GameStop reported net sales of $1.08 billion, down from $1.19 billion a year earlier, with a net loss of $3.1 million compared to a $94.7 million loss the previous year. Selling, general, and administrative costs also saw a 24% decrease.

The results are positive signs, considering that in its historical context, GameStop has consistently grappled with challenges in its October earnings. The third quarter, lacking significant shopping holidays, typically represents a seasonally slow period for retail companies, leading to a decline in consumer spending, especially on non-essential items like gaming products.

These gains align with GameStop’s ongoing turnaround efforts under CEO and Chair Ryan Cohen, who now wields increased powers.

In a recent communication, GameStop introduced two changes to its investment plan. The company can now use cash to buy equities instead of just short-term debt, and Cohen is now in charge of these investments.

Notably, following the meme stock frenzy that caused the company’s equities to balloon, concerns have been raised about the potential impact of GameStop’s brick-and-mortar footprint on its future success. In this line, Cohen is viewed as a key component to help turn around the firm’s fortunes. 

Wall Street analysts remain skeptical 

Nevertheless, Wall Street analysts show significant skepticism about GME, as only one expert at TipRanks has provided a 12-month price target in the last three months. This forecast is bearish, anticipating a drop to $6.00, reflecting a 65.24% decline from the current price. 

GameStop stock 12-month price forecast. Source: TipRanks

At the same time, technical analysis on TradingView indicates a bullish outlook for GME. A one-day technical analysis summary aligns with a ‘buy’ sentiment, registering at 13, while moving averages strongly advocate for a ‘strong buy’ at 12. However, oscillators are signaling a ‘sell’ at 3.

GME technical analysis. Source: TradingView

Amid the meme stock frenzy, GameStop must undertake strategic investments to enhance its business, which will likely impact the stock. This strategic shift would empower GameStop to generate capital gains and decrease its reliance on revenue derived from hardware, software, and collectibles, particularly in the face of intensifying competition in the market.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk.

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