Why GameStop Stock Is Down By 7% Today

GameStop Stock Drops After Quarterly Report

Shares of GameStop moved lower after the company released its quarterly report. GameStop reported revenue of $1.3 billion and GAAP loss of $1.39 per share, beating analyst estimates on revenue and missing them on earnings.

The company stated that inventory increased from $861 million in Q3 2020 to $1.14 billion in Q3 2021 as GameStop decided to front-load “investments in inventory to meet increased customer demand and mitigate supply chain issues”.

The earnings press release was very brief, and the earnings call did not provide more clarity on the company’s plans. GameStop decided not to provide formal guidance.

What’s Next For GameStop Stock?

GameStop shares remain volatile. On November 23, the stock made an attempt to settle above $250. Today, GameStop stock is trying to settle below $165. It remains to be seen whether GameStop still has the power of a meme stock as all attempts to gain upside momentum in recent months faced material selling pressure.

Analysts expect that the company will report a loss of $0.64 per share in the current year and a profit of $0.15 per share in the next year, so the stock is trading at roughly 1100 forward P/E.

The company’s longer-term strategy is unclear, and it remains to be seen whether it will be able to show fast growth that is required to justify its rich valuation.

It is also unclear whether GameStop can count on support from retail traders in case the stock moves closer to multi-month lows as the company failed to reveal any upside catalysts in the quarterly report.

The short interest in the company’s shares declined to reasonable levels compared to levels that were seen when GameStop became a meme stock. Meanwhile, trading volume declined, indicating that interest in GameStop waned. At this point, there is a material risk that GameStop stock will develop additional downside momentum in the upcoming trading sessions.

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