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
-
Three Ways President Trump Could Impact the EconomyThe Letter Some of Trump's top priorities could boost economic growth, but others risk fueling inflation.
-
Average Health Care Costs by Age: Can You Afford It?Expect to pay more as you age. We've got solutions for how to cover these costs, which can exceed $1,000 per month in your 60s.
-
Will You Be Able to Afford Your Dream Retirement?You might need to save more than you think you do. Here are some expenses that might be larger than you expect, along with ways to ensure you save enough.
-
More SECURE 2.0 Retirement Enhancements Kick in This YearSaving for retirement gets a boost with these SECURE 2.0 Act provisions that are starting in 2025.
-
Saving for Your Emergency Fund: As Easy as 1-3-6An emergency fund that can cover six months' worth of expenses is far easier to build if you focus on smaller goals at first.
-
Stock Market Today: Dow Slides 697 Points on Super-Hot Jobs DataWhen the December nonfarm payrolls report hit the tape, there was no question which way stocks would go at Friday's opening bell.
-
Blowout December Jobs Report Puts Rate Cuts on Ice: What the Experts Are SayingJobs Report The strongest surge in hiring since March keeps the Fed on hold for now.
-
Constellation Energy Stock Soars on Its $26 Billion Buy. Here's Why Wall Street Likes the DealConstellation Energy is one of the best S&P 500 stocks Friday after the utility said it will buy Calpine in a cash-and-stock deal valued at $26 billion.
-
Why Walgreens Is the Best S&P 500 Stock After EarningsWalgreens stock is soaring Friday after the embattled pharmacy chain reported strong earnings and gave an upbeat outlook.
-
Delta Stock Remains a Strong Buy After EarningsDelta stock is soaring Friday after the air carrier beat earnings expectations and issued a strong outlook. Here's what investors need to know.
