Abysmal Sales Update Has GameStop Stock Hitting Fresh Lows

Five analysts, including Jefferies, have already slashed their target prices

Deputy Editor
Jun 5, 2019 at 9:57 AM
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The video game retailer GameStop Corp (NYSE:GME) took a massive hit today, after its first-quarter earnings report sparked a major sell-off in early morning trading. While the firm reported earnings that beat analysts' expectations, GME's revenue of $1.55 billion came in lower than the estimated $1.64 billion. Plus, the firm halted its quarterly dividend. The equity is pacing for its worst day ever as a result, down 28.6% to trade at $5.58 -- a region the stock hasn't touched since 2003. 

Jefferies last night in a note expressed concerns around GME's business model, and called for a "dramatic pivot" in order for the stock to remain relevant. The brokerage firm cut its price target to $8 from $12, joined by five other members of the brokerage bunch, including Benchmark, which slashed its price target all the way down to $5. The consensus 12-month target price of $7.82 is still at a premium to current levels, however. There's still room for s downgrades, too. While five analysts following GameStop call it a "hold" or worse, one "strong buy" rating remains on the board. 

Today's miserable performance is just more of the same for GME on the charts. Since its four-month peak of $16.90 late January, the security has lost almost 67%. Ever since its fourth-quarter earnings sparked a massive bear gap, downward pressure from its 10-day and 20-day moving averages have kept the security southbound. GME is likely staring down its fourth straight monthly loss, too. 

Despite a recent unwinding of their bearish bets in the last two reporting periods, short sellers still have a tight grip on GME. Currently, the 39.84 million shares sold short represents an eyebrow-raising 40.1% of the stock's available float and over two weeks of trading, at the stock's average daily pace. 

Lastly, GameStop's Schaeffer's put/call open interest ratio (SOIR) of 0.85 sits in the lowest percentile of its annual range. This means short-term option players have never been more call-heavy during the past 12-months. Data from TradeAlert points to a flurry of sell to open activity surrounding the weekly 6/7 7.50-strike call during the past two weeks, meaning traders expected the underlying stock to close beneath the $7.50 region by the time the contract expired at the end of this week.

 


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