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stock fell sharply Monday after yet another analyst sounded off on the videogame retailer’s valuation.
Shares of GameStop (ticker: GME) were down 10% to $142.50 shortly before noon. Ascendiant Capital Markets analyst Edward Woo lowered his rating to Sell from Hold and cut his price target to $10 from $12 over the weekend.
“GameStop shares appears to no longer trade on traditional fundamental valuations or metrics, but on retail investors sentiment, hope, momentum, and the powers of crowds,” Woo wrote. “This makes short term price movement forecasts nearly impossible (and we acknowledge can drive shares much higher), but we believe that over the long run GameStop’s current elevated share prices will come back down to match its current weak results and outlook.”
Woo is the latest analyst to weigh in on GameStop stock’s surge. Several analysts maintained targets well below where the stock was trading, though their numbers didn’t hamper the rally. Though GameStop stock has been volatile since late January, it had settled quite a bit last week around $180 before falling on Friday.
The stock is still up 2,922% from a year ago. The stock surged in weeks after the company announced Chewy co-founder
Ryan Cohen
and two of his associates would join its board. Woo notes that Cohen appears to be a major catalyst for the stock’s rise, though his impact been supercharged by the high-profile short squeeze and enthusiasm from retail traders.
Cohen holds 13% of GameStop shares and is trying to turn things around at the company. GameStop said it plans to elect Cohen as chairman of its board later this year.
Still, Woo sees “significant digital and execution risks” for the company. He wrote that GameStop’s fiscal fourth-quarter earnings benefited from a tax benefit of about $1 a share. Though e-commerce sales jumped 175% year over year, he notes that global videogame industry sales continued to benefit from shelter-in-place orders and new console sales. He also points to reports from game publishers that digital revenue is accelerating—an area where GameStop sees low market share.
“We remain very concerned about the long term prospects for its videogame business especially once hardware sales temper as the installed base matures,” Woo wrote.
Write to Connor Smith at connor.smith@barrons.com
