GameStop Corp (NYSE: GME)’s year-to-date performance stands at 218.47%. However, it closed the last session 6% down at $60 and was extending losses in the pre-market trading on Tuesday. The stock’s price index has risen 231.86% in the last month, and over the past three months, it has gained 424.02%. Over its 52-week period, its performance was 1474.80% compared to 1342.3% in the six months.
In recent weeks, shares of video game retailers have taken wild swings. After surging in January on an unparalleled short squeeze, GameStop shares plummeted last week as the squeeze came to an end, traders took profits, and the stock returned to its fundamentals. The stock dropped 80% over the past week. Analysts who cover the company, however, remain steadfast in their belief that shares are going to fall even further before reaching reality.
The company’s stock surged more than 1,600% in January, as retail investors signed up for the Wall Street Bets forum and bought the stock to punish hedge funds who had taken an outsize short position against it.
Despite few people on the forums posting their views on how much a share of GME stock is really worth, a popular YouTube streamer named Keith Patrick Gill, who went by the name Roaring Kitty, previously suggested it should reach at least $50 per share.
The company’s stock fell 5.9% in Monday’s trading from $60 to $53.
Analysts who cover GameStock, saying the stock is worth an average of $13.44 per share, 78% lower than the current trading price, highlighting the dismal outlook between Wall Street and amateur investors, who view the company’s value as a symbol of retail investors’ growing power.
The company wants to determine whether it can transition to a digital focus without losing its profitable used games business, which generates gross margins of approximately 50%, the most profitable of the company’s business segments.
A 20 times multiple of earnings per share of $6.29 in 2024 is the only way GameStop shares can be worth $125 per share in an unlikely blue sky scenario, said Colin Sebastian, an analyst at Robert W. Baird & Co.
It is only possible if GameStop increases its margins by using its 2,500 physical stores less frequently and saving $500 million annually while maintaining its market share against competitors such as Best Buy Co Inc and Target Corp, he said.
That scenario has at most a 5% probability of occurring, he noted. More likely is that, while they are laying off employees, they will have a higher e-commerce revenue, leaving them a greater share of the pie, he said.
Sebastian said that a “storm cloud” scenario, where customers abandon the store and drive its share price to zero, has a three times greater chance of occurring than a successful transition to a digital marketplace.
The company’s current average price target among analysts is nearly double that of November, shortly after Ryan Cohen, one of the company’s largest shareholders, prompted the company to focus on digital sales in a letter dated Nov. 16.
Yet the stock price shattered the connection between its intrinsic value and its market value, making it inevitable that the stock can collapse, he said.
It’s worth noting that many challenges remain in the core business. The holiday season was marked by 309% growth in e-commerce sales, but overall revenue dropped 3.1% to $1.77 billion. Investors are interested in Chewy’s potential in e-commerce and the company’s potential in e-sports, but the company’s fundamentals are still weak. With this reality in place, the stock has more room to fall.