There are several reasons to be bearish on GME stock
There hasn't been much good news surrounding GameStop Corp. (NYSE:GME) stock in the past year. The shares have been punished, touching a 13-year low of $12.14 earlier this week. And while they enjoyed a rare upside move on Wednesday thanks to the sale of the company's Spring Mobile business, they're back in the red today. Now with earnings due out next week, another analyst is weighing in cautiously on GME stock.
Specifically, BofA-Merrill Lynch just reiterated its "underperform" rating on the video game retailer, saying it expects the company's fundamental issues to continue for the foreseeable future, including "double digit EBIT declines through at least 2020." The majority of GME analysts already have "hold" or worse ratings on the security.
This downbeat analyst attention is just adding to the dim outlook on GameStop. As we've recently noted, data from Schaeffer's Senior Quantitative Analyst Rocky White shows the shares have historically struggled during the holiday season. Next Thursday's post-close earnings release could spell trouble, too, since the stock has closed lower the day after earnings in five of the past eight quarters.
For what it's worth, the options market is pricing in a 10.5% swing for next Friday's sessions, regardless of direction. Looking closer, however, it would seem traders are gearing up for more downside, since the 10-day put/call volume ratio across the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) stands at 7.89, ranking in the bearish 97th annual percentile.
GameStop stock was last seen trading down 2.5% at $13.37. If all of this wasn't bad enough, other data from White shows that GME's 50-day moving average, which has been acting as resistance, could also be signaling more technical struggles in the near term. For example, the shares have averaged a 21-day loss of 5.5% after meet-ups with this closely watched trendline over the past two years.
