As the saga surrounding GameStop (NYSE: GME) seemingly draws to a close, as GME stock went from $65 to $22 in just three trading sessions after a staggering loss of 65% over the same period, GME stock is showing signs of recovery in the pre-market, with gains of 3.29%.
Whether the current rally was short-lived or other potential short squeezes will occur in the upcoming months may depend on the trading community and its leader ‘Roaring Kitty.’
Preliminary Q1 results are not looking good
GameStop shares dropped over 23% before the market opened on Friday after the company reported disappointing preliminary first-quarter sales. The company expects net sales between $872 million and $892 million, missing the estimated $1.05 billion and down from $1.237 billion last year.
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Anticipated net loss ranges from $27 million to $37 million, an improvement from the $50.5 million loss in the same quarter last year. Cash, cash equivalents, and marketable securities are projected between $1.073 billion and $1.093 billion, down from $1.310 billion a year ago.
Additionally, GameStop filed for a mixed-shelf offering and announced an agreement with Jefferies to potentially sell up to 45 million shares of Class A stock.
This news is not good for GameStop as a company as it continues to struggle to regain a foothold in the video game retail industry, and its debt burden becomes a persistent issue.
Wall Street weighs in on GME stock
Many analysts refrain from weighing in on GME stock due to its recent volatility, so ratings and price targets are scarce. TipRanks reports only one analyst from Wedbush in the past three months, Michael Pachter, reiterating a ‘sell’ rating while moving the price target from $5.60 to $7 on May 17.
While the target was raised, it would still represent a 68.48% decrease from the current GME stock price.
Wedbush analyst Michael Pachter sees GameStop’s share issuance positively, noting it’s wise to increase reserves amid ongoing business struggles. However, GameStop’s first-quarter profit and sales warning revealed sharper declines than expected, likely due to faster store closures. Pachter doubts the company can recover through cost-saving alone, anticipating a continued shift from physical to digital sales.
Despite potential boosts from a new Nintendo console, PS5 Pro, and GTA VI next year, Pachter expects ongoing sales declines. He advises that GameStop must use its cash effectively or rely on further share issuances to delay more difficulties.
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