GME Stock Price Down 4% – is now a good time to buy GME Stock?
Please note that we are not authorised to provide any investment advice. The content on this page is for information purposes only.
The price of GameStop (GME) shares is starting the week on a negative tone as it is declining 4.9% so far this morning at $222.19 per share.
Last week, GME posted a weekly negative performance of 6% as a result of a single-day decline of almost 27% that took place after the release of the firm’s quarterly report while the stock’s momentum among retail traders from the popular Reddit messaging board WallStreetBets (WSB) appears to be fading.
According to the meme stock tracking website Swaggy Stocks, GME’s comment volume today ranks in the 10th place compared to other more popular issues including AMC Entertainment (AMC) and Blackberry (BB) while positive sentiment toward the stock is reaching its lowest level in a month.
The double-digit single-day downtick from last week appears to have taken place as the company announced its intention to sell up to 5 million shares of its common stock through an at-the-market offering to take advantage of the current positive valuation.
Meanwhile, the company announced that it had received a formal solicitation of documents from the United States Securities and Exchange Commission (SEC) on May 26 concerning an “investigation into the trading activity in our securities and the securities of other companies”.
In this regard, the management team commented on its 10Q filing: “We are in the process of reviewing the request and producing the requested documents and intend to cooperate fully with the SEC staff regarding this matter”.
GME stock – fundamental analysis
GameStop beat both earnings and revenue estimates for the first quarter of its 2021 fiscal year, as sales climbed 25.1% to $1.28 billion compared to a year ago against estimates of $1.16 billion for the period.
Meanwhile, the company’s bottom-line profitability landed at minus $0.45 per share, which resulted in lower-than-expected losses compared to the market’s consensus forecast of $0.83 for the period.
GameStop has been able to partially sanitize its balance sheet by paying its short-term debt commitments, with the company doubling its stockholder’s equity to $880 million by the end of this first fiscal quarter using the proceeds from previous share offerings.
Meanwhile, the company has been able to trim its losses lately from $673 million in 2019 to $215 million by the end of its 2020 fiscal year amid lower asset impairments.
That said, the outlook for the business remains bearish as gross profit margins have continued to shrink, landing at 25.9% this past quarter for a 180 basis points decrease compared to the same period a year ago.
Meanwhile, analysts are estimating that sales for the video-game retailer should land at around $5.74 billion by the end of its 2022 fiscal year, which results in a price-to-sales multiple of almost 3 based on today’s market capitalization for a company that has been reporting negative sales growth for years.
Although GameStop could continue to sanitize its balance sheet in the future by taking advantage of this temporary positive momentum, the valuation continues to be unattractive from a fundamental perspective.
GME stock price – technical analysis
From a technical perspective, GameStop shares are approaching important areas of support highlighted in the chart above and traders should approach the stock with caution in the following days until these levels are tagged.
At this point, the key levels to watch are $189 and $180. A break below these levels could lead to a more pronounced decline in the price of GameStop (GME) shares.
Reinforcing this bearish outlook, the MACD has just sent a sell signal. It is important to note that in the past three times that the MACD made a pronounced move below the signal line the price of GME shares went on to decline 16% from February 4 to February 23 and 20% from March 23 to May 12 this year.
Even though history doesn’t necessarily repeat, one has to acknowledge that downside risks at this point are quite high based on the negative momentum that the stock is seeing both on the WSB forum and from a technical and fundamental perspective as a result of the company’s upcoming at-the-market offering.
To put some context into the impact of this stock offering, the 5 million shares GameStop plans to sell account for almost 10.5% of the stock’s current float according to data from Yahoo Finance and 7% of the company’s total shares outstanding according to the firm’s latest quarterly report.
More than 52 million GameStop shares have exchanged hands since the company filed this at-the-market offering with the SEC, which suggests that a big portion or possibly the totality of this offering might have already been sold.
Looking to buy Gamestop Stock now? Invest at eToro!
75% of all retail investor accounts lose money when trading CFDs with this provider.
