GameStop (NYSE:GME) stock is up 64% in the past six months. But just try finding timely information about the company. GameStop stock has just two analysts covering it. Yet it has an average daily volume of over 14 million shares. That’s 7 million shares per analyst.
Nvidia (NASDAQ:NVDA) has an average daily volume of 261 million shares, about 19x GameStop. Yet, it has 62 analysts covering it, which works out to about 4.2 million shares per analyst.
As a retail investor, you’ve got better odds staying informed about Nvidia than you do GameStop, yet a major swath of people believe they’re somehow dialed into the inner workings of the company and its CEO — and its largest investor — Ryan Cohen.
That’s just not so.
Sure, you can do the Peter Lynch-inspired move, and go hang out at the local GameStop to see how many people are shopping there, but it won’t tell you much. Analysts, on the other hand, have the funds to get channel checks, etc., which provide far better insight into the current state of affairs.
Here are three things GameStop investors miss by not having significant analyst coverage.
There’s a Reason for No Coverage
There used to be a time when finding uncovered gems could pay dividends. With the growth of passive and active ETFs, it’s been harder for even small-cap companies to stay under the radar for long. At least, those businesses that have significant growth potential, and are worth paying attention to.
Analysts don’t cover GameStop because there’s no reason to.
Over the past 10 years, the company’s revenues have declined by 43% from $9.3 billion in 2014, to $5.27 billion in 2023. Meanwhile, it hasn’t generated an annual operating profit since the fiscal year that ended in February 2018.
That’s six years without an operating profit. As a result, it’s gone from $2.09 billion in retained earnings in 2014 to an accumulated deficit of $212.8 million in 2023.Investors should note that while GameStop did report a return to net income in 2023, viewing the business from an operational standpoint, which includes theinfrastructure and overhead needed to generate profits, but excludes interest expenses (benefits) and taxes, gives you a better idea if it is operationally sound.
To get back to its 2014 financial situation will take both a miracle and a return to the old days where video games were played on game consoles. It’s just not going to happen.
Why would JPMorgan or Wedbush or any other of the investment banking firms providing sell-side research analysis waste their time on GameStop? They wouldn’t and they don’t.
Don’t feel too bad. According to MarketWatch, only seven Wall Street analysts have a rating for Berkshire Hathaway (NYSE:BRK-B), which will likely soon become the seventh S&P 500 company to see its market capitalization go over $1 trillion.
Good Luck Coming Up With Your Own Estimates
If you look at the end of the text portion of GameStop’s Q1 2024 press release it says, “The company will not be holding a conference call today.”
What company with a market cap of nearly $9 billion doesn’t hold a conference call? GameStop, that’s who. Looking at my Quartr app, it appears it hasn’t held a conference call since Q4 2022.
To confirm this, I went through its quarterly press releases since 2022’s fourth quarter and the same words have appeared on five consecutive press releases.
However, it did provide preliminary Q1 2024 results on May 17. On June 7, it reported its actuals, which were within the guidance range for both the top and bottom line. It did not provide guidance for 2024.
“And with respect to an outlook, we’re not delivering guidance at this time. We want stockholders to judge us on our results instead of our words,” Former CEO Matt Furlong stated on March 24, 2023, the last time GameStop held a conference call.
God knows when it last provided annual guidance. Yet people still buy its stock.
GameStop Stock Provides No Answers
The company’s annual shareholder meeting in June was 30 minutes. Nobody was allowed to ask questions.
CEO Ryan Cohen did say a few things in his prepared remarks that kept investors informed without really saying anything about the company’s strategy.
“Revenues without profits and prospects of future cash flows are of no value to shareholders. This means a smaller network of stores with an expanded assortment of higher value items that fit into our trade-in model,” CNBC reported his comments.
Interestingly, his comments about his father’s philosophy in life were very similar to what Furlong said in 2023.
“As my father always said, actions speak louder than words. We are focused on building shareholder value over the long term. We are not here to make promises or hype things up, we’re here to work,” Cohen stated.
At this point, the only thing investors can take to the bank is that it has approximately $4 billion in cash on its balance sheet, which works out to about $9.38 a share in cash based on 426.2 million outstanding shares after selling 75 million shares in its ATM offering in June.
With few answers, that cash figure is the maximum value of GameStop stock. GME is a sell.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) and positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
Technology, Video Games
