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GameStop shares find calm after meme-stock storm

Images shows a GameStop storefront in the US.

The GameStop [GME] share price has settled down after a volatile spring and summer. The video game retailer’s stock rose to a year-to-date high of $49.85 on 29 March, before dropping below $20 in May. The shares then rallied to their second-highest level of the year, reaching $47.99 on 8 August, before tumbling to a higher low of $24.06 in September. Since then, the shares have traded sideways in a range between roughly $22 and $35.

This represents a rare period of calm for the so-called meme stock, whose share price soared 10,692% from $3.25 in April 2020 to $347.50 in late January 2021 amid a trading frenzy driven by retail investors and fans of the Reddit forum WallStreetBets. The shares underwent a four-for-one stock split on 22 July this year. 

Now, as the company gets ready to announce its Q3 results on Wednesday, we explore whether this share price stability could last. 

Game over for meme stock volatility? 

In August, shares in GameStop and other struggling US businesses, such as home goods store Bed Bath & Beyond [BBBY] and cinema chain AMC Entertainment [AMC], jumped on a fresh round of online chatter. GameStop chair and activist investor Ryan Cohen, who co-founded pet supply store Chewy [CHWY], reportedly made $60m after he closed his position in Bed Bath & Beyond in mid-August. 

Since then, meme stock price action has quietened considerably, and our chief market analyst Michael Hewson doesn’t expect GameStop shares to spike again in the near term. “After the volatility in the first part of the year, the GameStop share price has settled down to a more stable regime since September, finding support just above $20 and resistance at $30,” said Hewson with reference to the chart below. “This isn't likely to change with this week’s Q3 numbers, though the bias does suggest the potential for further weakness,” he added.

Source: CMC Markets

Third-quarter losses expected to narrow 

When GameStop reported Q2 results in September, its shares jumped as losses came in at a lower-than-expected $108.7m, or $0.35 a share, even though revenue of $1.14bn fell short of expectations for $1.28bn. 

For Q3, which covered the three months to the end of October, analysts expect losses to narrow to $0.29 a share, according to Zacks Investment Research. That would represent an improvement on losses of $0.35 a share in both the previous quarter and the year-ago period. Revenue in Q3 is forecast to come in at $1.38bn, up 6.6% year-on-year, according to Zacks. With two days to go until the Q3 results announcement, the shares are down approximately 31% for the year.

Although few analysts offer ratings on GameStop, the Financial Times managed to find two reports about the company in December. One analyst gave the shares a ‘hold’ rating, while the other rated them a ‘sell’. The analyst offering the hold rating put the stock’s 12-month price target at $26, while the other analyst gave a target of just $6. The median 12-month price target of $16 represents a 42% decrease on the 2 December closing price of $27.52. Even the higher of the two analyst price targets implies a 5.5% drop in the stock’s value over the next year. 

Late to the NFT party? 

With GameStop having launched a new non-fungible token (NFT) marketplace in July, Q3 was the first full quarter in which the new platform contributed to overall company performance. Unfortunately for GameStop, its entry into the recently imploded digital collectibles market seems ill-timed. 

As part of its diversification strategy, in September the company announced a partnership with the now-collapsed cryptocurrency exchange FTX to introduce “GameStop customers to FTX’s community and its marketplaces for digital assets”, according to a GameStop statement. The fallout of FTX’s recent collapse is likely to be one of the main talking points when GameStop announces its Q3 results on Wednesday 7 December.

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