- Gamestop manipulates market with weak preliminary results for Q1.
- Gamestop’s mixed-shelf filing poses dilution threat to investors.
- Stock prices in decline, heading towards ominous $10 mark.
Investors in GameStop have found themselves in a labyrinthine maze where the company’s weak guidance announcement and upcoming share sale are casting a foreboding shadow over the stock’s trajectory. The recent surge in stock prices due to meme-fueled euphoria has lost its steam, signaling a downward spiral. While some reaped the rewards during the surge, a larger crowd is now capitalizing on the descent. Short-sellers are regaining their footing, prepared to keep the downtrend in motion.
Unveiling Gamestop’s Preliminary Q1 Results
Gamestop garnered attention by unveiling its preliminary Q1 figures, painting a bleak outlook. The projected revenue of $872 to $892 million fell short of analyst expectations of $1.05 billion – a staggering 30% decline from the previous year.
As retail sales data indicates a rise of 3% year-over-year, it fails to outpace inflation, hinting at a possible contraction in consumer spending. Given GameStop’s reliance on discretionary consumer tech items, the outlook appears bleak. The official Q1 results are expected in early June.
Although the balance sheet stands firm, the company continues to burn cash. Cost-cutting measures have been initiated, yet the net losses total around $35 million, leaving the cash reserves at approximately $1.083 billion. While this sustains current operations for a few years, tough decisions loom, including the possibility of liquidation.
The specter of dilution haunts investors as GameStop filed for a mixed-shelf offering alongside its financial forecast. While the filing doesn’t guarantee share sales, it paves the way for potential dilutive measures. With no specified amount, the impact could be substantial, as evidenced by the 0.4% rise in average share count since the last report.
Gamestop: An Unrequited Love Story
Despite a devoted investor base, Gamestop fails to attract broader market favor, causing a downward pull. Wedbush stands as the solo analyst covering the stock, assigning a Strong Sell rating with a price target of $5.60 – markedly lower than the current price. Institutional buying, at around 30%, remains dubious given the stock’s high short interest and speculative nature. Insiders hold 12% ownership, yet most have been selling off their stakes. CEO Ryna Cohen’s last notable share purchase dates back to Q2 2023.
The elephant in the room remains the short interest. While the recent price surge inflicted losses on many short-sellers, they have likely recalibrated. The last known short interest rate surpassed 20%, potentially even higher presently.
Assessing Gamestop’s Technical Landscape
Gamestop’s price action reflects sturdy resistance beyond $40, with a volatile candlestick formation resembling a Shooting Star signaling an improbable endurance above $30. Multiple resistance points postulated by this candle pattern suggest a sustained downtrend, with a probable return to the dreaded $10 level on the horizon.
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