Can anything stop the GameStop frenzy?

Market Updates

GameStop – a US-listed bricks-and-mortar video games retailer – started the year out trading around the $17 mark. That already represented a significant run-up in value for the company, which, like many other retailers of its kind, appeared to be in a state of terminal decline.

Then a few weird things happened.

Can anything stop the GameStop frenzy?

Reddit, Memes, and Precarious Shorts

One, the company became a meme. Reddit – a popular internet forum and home of the immensely popular subreddit Wall Street Bets – developed an obsession with GameStop. This ranged from intricate fundamental analysis to light-hearted banter, and a preoccupation with Melvin Capital, a prestigious hedge fund which at the time held a chunky short on GameStop.

While it’s impossible to definitively quantify the impact this memeification had on the share price, a few things are certain: the GameStop share price surged in value during the early part of the year as a result of buying activity and an epic short squeeze that blew a hole in Melvin Capital.

GameStop remains up 1,075% since January, last trading at $202. Mind you, despite still being up significantly year-to-date, the stock remains well off its 52-week peak of $483.

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Change Makers Make Change

Two, enter billionaire Ryan Cohen, co-founder of the popular online pet-focused retailer Chewy. He’s currently serving as GameStop’s Chairman and has a bold, digital-first vision for the company.

To realise that vision, last quarter the company announced a radical shakeup of its c-suite, installing a new CEO (Matt Furlong) and CFO (Mike Recupero), both who previously held roles at tech giant Amazon.

Beyond that, in the first quarter the company booked $1.277 billion in net sales against a gross margin of 25.9%. Plus, the company successfully raised $551.7 million in fresh capital in Q1, earmarking those funds ‘to accelerate GameStop’s transformation as well as for general corporate purposes and further strengthening the balance sheet.’

GameStop Outlook

While the company has suspended FY21 guidance, at the time of the Q1 release management reported that ‘May total sales increas[ed] approximately 27% compared to last year.’

Despite that momentum, the sell-side remains decisively bearish on the name, with GameStop commanding a Sell rating and $22.00 price target, on average. While the sell-side remains disappointed, investors more broadly seem excited for GameStop’s future, with the share price up 33% in the last month.

GameStop is expected to hand down its Q2 results on Wednesday, September 8. On average, analysts expect GameStop to report Q2 revenue of $1.12 billion against earnings per share (EPS) of negative 66 cents per share, according to YahooFinance.

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