GameStop is set to report fiscal first quarter results on Wednesday after market close, which likely reflect lower selling and better losses of many investors who fix themselves on the company's MEM - stocks clout over business performance.
Here are the main results Wall Street expects to see in the report from Bloomberg on GameStop, based on consensus estimates compiled by Bloomberg :
gametop, one of the original names that it had planned to get up during a frenzy of retail investor activity earlier this year, has seen a renewed wave of interest on the internet in recent weeks. Investors on platforms such as Reddit's forum Wall Streetbets have released GameStop and other stocks like AMC Entertainment BlackBerry and Bed Bath Beyond which have all been subject to considerable short interest. In doing so, these users helped to drive significant shorts of these shares and catalyzed widespread short squeezes, while those who bet against stocks scrambled to cover their broad positions.
According to data from GameStop, short interest in S 3 Partners had a total of $3.04 billion at the close of Tuesday's share sale with 10.86 million shares shorted for a 19% short share of float. Short sellers in GameStop were down by $394 million last week.
For many investors, firm fundamentals have taken a back seat to the mass appeal of these stocks when making investment decisions. GameStop is expected to post its fourth loss in the past five quarters. Revenue is expected to increase 15% year over year to mark the first growth in almost three years. These estimates were drawn from just three Wall Street firms, given that the majority of sell-side analysts dropped their coverage on GameStop's stocks in recent months due to its elevated volatility.
And of the analysts who still cover GameStop, most have taken a bearish attitude on the stock.
Regardless, we rate GameStop underperform given our belief that digital disintermediation centered around multiple structural factors will continue to weigh on earnings and cash flow, wrote Bank of America Curtis Nagle in a recent note. GameStop currently has a significant cash position which we expect to be used to pay down debt and repurchase shares. With the risk that free cash turns negative in the next few years, however, earnings support from capital return will decrease and likely be overwhelmed by decreasing operating earnings with continuing weakness.
The company reported fourth quarter adjusted earnings per share, revenue and comparable sales that each missed estimates, though these metrics were recovered from their worst points during the pandemic.
However, some have asserted that there is a fundamental argument to be made for investing in shares of companies such as AMC and GameStop, with the consumer-facing, brick-and mortar businesses benefitting from the same reopening trade rotation that lifted airline, cruise line, leisure stock and retailers.
And both GameStop and AMC have tried to capitalize on their hefty retail investor base. The companies have issued millions of new shares over the last few months — with prominent disclaimers about potential volatility and losses for investors — as a means of raising additional funds to invest in the companies. AMC recently took that strategy one step further by offering a new shareholder platform to engage with investors and directly offering free popcorn at the company's theaters.
AMC, to me, is probably the most speculative of these new trades, in how people are looking at it right now, told Yahoo Finance JJ Kinahan, TD Ameritrade Chief Market Strategy. Where do I start a game at GameStop? I think of the pure'meme stock' and we're trying to figure out what the fundamentals are. And I think the earnings from these Wednesdays are going to be a really interesting story.
Valuation has been a key concern for analysts covering GameStop, and a number have written up on the shares fully amid the unprecedented retail investor interest. Of those that still cover the stock, two rated the stock as a Sell, while two rated the stocks as Holds.
The shares of GameStop have rallied more than 1,400% for the year-to-date, including a gain of 86% over the past month alone.
This blog will update Wednesday with the results of GameStop's quarterly results after market close. Check back for updates.
Emily McCormick is a reporter at Yahoo Finance. Follow her on twitter: emily mcck
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