GameStop (GME) stock is spiraling in Wednesday's session after the video-game retailer reported its second-quarter earnings results and announced an at-the-market stock offering.
In the 13 weeks ended August 3, GameStop's revenue decreased 31% year-over-year to $798.3 million. The company also said its bottom line swung to earnings of 4 cents per share from a loss of 1 cent per share in the year-ago period.
The results were mixed compared to analysts' expectations. Wall Street was anticipating revenue of $896 million and a net loss of 9 cents per share, according to MarketWatch.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
In the release, GameStop also announced an acceleration to its store closure plans.
"While this review is ongoing and a specific set of stores has not been identified for closure, we anticipate that it may result in the closure of a larger number of stores than we have closed in the past few years,” GameStop said.
In a separate release, GameStop announced an at-the-market offering of up to 20 million shares of its common stock, which it plans to use for "general corporate purposes."
When a company announces a stock offering, it often leads to a decline in its share price over concerns of dilution. A stock offering increases the number of shares available in the market and reduces the ownership percentage of existing shareholders. The dilution also negatively impacts a company's earnings per share since there are more shares outstanding.
A stock offering can also cause concern because it shows that the company needs additional capital and is willing to dilute existing shareholders to raise it.
Is GameStop stock a buy, sell or hold?
GameStop is likely better known for its meme-stock status, and considering this, it shouldn't be too surprising that shares have been volatile this year. Indeed, GME was up nearly 74% for the year to date in mid-May on some Roaring Kitty news, but has since pared this lead to 12%.
As such, most of Wall Street is staying away from GME. However, financial services firm Wedbush follows the consumer discretionary stock and has an Underperform rating, which is equivalent to a Sell. And its $10 price target on GME represents implied downside of 50% to current levels.
"While we admire GameStop's ability to manage operating losses, we think it would be just as reasonable for management to close all of its stores and operate as a bank," says Wedbush analyst Michael Pachter.
The company has about $10 per share in cash at the moment, "but without a hint of any strategy that would reasonably deploy capital, we do not see why shares trade at two times cash. GameStop announced accelerated store closures with its earnings, but with no replacement strategy in sight, management indirectly indicates that it is no longer beholden to shareholder interests."
Pachter adds that GameStop "faces a near insurmountable barrier to its planned return to growth."
Related Content
-
Why Uber Stock Is Volatile After GM's Cruise AnnouncementUber stock is swinging this week following news that General Motors is restructuring its Cruise unit. Here's what you need to know.
-
UnitedHealth Stock Falls as Lawmakers Eye Insurers, PBMsUnitedHealth stock is continuing to fall Thursday after the introduction of bipartisan legislation targeting PBMs and healthcare giants. Here's what to know.
-
Why Uber Stock Is Volatile After GM's Cruise Announcement
Uber stock is swinging this week following news that General Motors is restructuring its Cruise unit. Here's what you need to know.
-
Why Adobe Stock Is Down After Its Earnings BeatAdobe stock is lower Thursday despite the tech giant beating expectations for its fiscal 2024 fourth quarter. Here's what you need to know.
-
Three Possible Tax Impacts for Retirees Under TrumpHow might a second Trump term affect your tax bill in retirement — or the inheritance tax bill for your heirs? This pro has three predictions.
-
What to Know About Leverage and Bitcoin's Meteoric RiseLeverage in the financial world can lead to astonishing success or a crushing collapse. How are investors using leverage to invest in bitcoin?
-
How Do You Know When It's Time to Change Financial Advisers?Sometimes a breakup is for the best. Here's how to handle 'the talk' and make the switch to a new professional who's a better fit for you.
-
Stock Market Today: Tech Stocks Rally as CPI Supports Lower RatesAn inline inflation report sealed the deal for a December rate cut and sent the tech sector soaring.
-
CPI Report Casts Doubt on Rate Cuts in 2025: What the Experts Are Saying About InflationCPI November Consumer Price Index data sealed the deal for a December rate cut, but the outlook for next year is less certain.
-
The Best Utility Stocks to BuyUtility stocks are defensive plays for investors, offering stability and reliable dividends. Here, we look at how you can find the best ones to buy.
