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
-
Retirement Health Care Costs Are On the Rise: What You Need to KnowA 65-year-old retiree will face significantly higher lifetime health care costs than they would have a year ago, even with Medicare. Here are the surprising totals.
-
Virginia Tax-Free Weekend 2025 Is Here August 1–3: What to KnowSales Tax Three days, no sales tax. Here’s what qualifies for Virginia’s tax-free weekend.
-
Three Ways to Find Deals in Your Investments This YearLooking for ways to save because of tariffs? Don't forget to look for deals in your investments. Here are three expert tips for making a little extra this year.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates before the end of the year is better than 85%.
-
You Don't Have to Be Wealthy to Need a Wealth ManagerNavigating complex financial decisions is hard on your own, no matter how much money you have. A wealth manager can provide comprehensive financial planning, investment management, risk management and more.
-
Despite Tariffs, These Investment Experts Are Bullish on European EquitiesEuropean equities were one of the better-performing investments during the first half of 2025. They could be a good long-term prospect for U.S. investors needing to diversify, according to these investment managers.
-
Stocks Are Up and Down on Fed Day: Stock Market TodayIn another sign of changing times, JPMorgan has partnered with Coinbase to enable cryptocurrency purchases with credit cards.
-
What Federal Interest Rates Mean for Your Grocery BillThe relationship between grocery prices and the Federal Reserve has plenty of back-and-forth. Understand how they interplay.
-
5 Undervalued Stocks to Buy NowThere are plenty of high-quality undervalued stocks to buy right now, you just need to know where to look. Here, we highlight five of our top picks.
-
How Do You Know You Are Ready for a Gray Divorce? 15 Yes-or-No QuestionsAs people 50 and older get more gray divorces, many splits are initiated by women who want a new path. Answer these 15 questions to see if you might need to think about how you should move forward.
