Game Stop (EMG) The last quarterly report was mixed, showing an outperformance on turnover but disappointing on the profitability profile.
In the first quarter, revenue reached $1.38 billion, up 7.8% year-over-year while beating the consensus estimate of $1.34 billion. However, adj. EPS of -$2.08 is well below the $1.45 per share loss expected by Wall Street.
With management still unresponsive to questions about details, Baird analyst Colin Sebastian says it’s hard to know what’s behind the actual results. The 5-star analyst, however, has an idea of what happened in the quarter.
“We assume that Nintendo products (hardware and software) and collectibles were key positives, and console hardware supplies improved a bit,” Sebastian said. “But software sales continue to migrate online, gross margins shrink, and general and administrative expenses rise as the company invests in e-commerce, new product categories, and lays the foundation for digital asset transactions ( arguably most of the expectations embedded in the market cap).”
This last part refers to the opportunity the company is looking for in “speculative areas” around “Web3” – blockchain, crypto and especially NFTs.
The quarter saw the launch of the Chrome browser’s digital wallet – intended for storing digital assets – and over the next few weeks GameStop plans to launch its NFT Marketplace.
There’s no doubt, says Sebastian, that GameStop is in the midst of a transformation, realizing where the puck is headed and “reframing its retail strategy to reflect the realities of the digital age.”
However, with its status as the king of Meme stocks, volatility “is more closely tied to non-fundamental trading, social media influences, and other factors.”
Therefore, until the company “more clearly articulates new management’s business strategy,” which will allow investors to better assess the company’s “intrinsic value and prospects for future free cash flow generation,” Sebastian removed his rating and target price from the table. (To see Sebastian’s track record, Click here)
In fact, only two analysts have dared to take on the task of evaluating the prospects of the video game retailer. Based on 1 sell and hold each, the analyst consensus is a moderate sell. The forecast is for around 48% downside over the coming year, given that the average price target stands at $70. (See GameStop’s stock forecast on TipRanks)
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Disclaimer: Opinions expressed in this article are solely those of the featured analyst. The Content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.