Why GameStop Stock Is Down By 13% Today

GameStop Video 10.06.21.

GameStop Stock Moves Lower As Company Expects To Sell More Shares

Shares of GameStop gained downside momentum after the company released its quarterly results.

GameStop reported an adjusted loss of $0.45 per share and revenue of $1.28 billion, easily beating analyst estimates on both earnings and revenue. GameStop noted that it had $770.8 million of cash and restricted cash on May 1, 2021, while it had not borrowings under the asset-based revolving credit facility and no long-term debt.

GameStop also stated that it may offer and sell up to 5 million shares of its common stock in “at-the-market” offerings.

The company has also announced that Matt Furlong will become CEO while Mike Recupero will become CFO. Both executives come from Amazon.

GameStop added that its May total sales increased by about 27% compared to last year, but the company continued to suspend guidance for the full year.

What’s Next For GameStop Stock?

While the company’s report exceeded analyst expectations, the news about another share sale served as a bearish catalyst for GameStop shares. The company’s management is using the stock’s popularity to boost GameStop’s balance sheet, which is the right thing to do from the business point of view.

However, the “at-the-market” share sale may put pressure on GameStop shares as trading volume has declined significantly in recent months compared to January – March period.

From the fundamental point of view, the stock remains significantly overvalued despite the positive trends highlighted by the report. In this light, the near-term dynamics of the stock depend on the activity of retail traders.

It remains to be seen whether the current pullback will turn into a strong sell-off as professional short-sellers will likely stay away from GameStop after three major short squeezes in 2021.

Without selling pressure from professionals, GameStop’s fate will be in the hands of retail traders which were not worried about the company’s fundamentals before, and may continue to hold GameStop stock.

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