GameStop Corp. GME has yet to show financial success in an industry that is rapidly shifting to digital and its current valuation “far exceeds our high fundamental expectations” but there are factors favoring the videogame retailer, according to analysts at Telsey Advisory Group.
The GameStop Analyst: Telsey reiterated its Underperform rating on the stock and maintained a price target of $33. GameStop is scheduled to report its fourth-quarter results after the markets close on Tuesday.
The GameStop Thesis: The analysts expect GameStop to benefit from the new gaming cycle, with current demand outpacing supply for new generation Microsoft Corporation MSFT and Sony Corporation SNE consoles.
GameStop is also expected to benefit from its agreement with RC Ventures and the board refresh as well as its healthy balance sheet with a net cash position of $101 million at the end of the fiscal 2020 third quarter.
Fourth-Quarter Expectations: The analysts expect GameStop’s fourth-quarter sales to decline 3% year-over-year to $2.13 billion, on comparable sales growth of 4.5%.
GameStop E-Commerce Transformation: GameStop said in early March that its board has constituted a strategic planning and capital allocation committee to zero in on initiatives to aid its business transformation.
The committee, chaired by major shareholder and Chewy, Inc. CHWY founder Ryan Cohen will focus on transforming the company into a technology business. Cohen, through his RC Ventures, owns about a 13% stake in GameStop.
Since its institution, the committee has appointed GameStop’s first-ever chief technology officer to oversee the company’s digital business and technology functions. Led by Cohen, GameStop is expected to adopt a digital business and transform from a brick-and-mortar business model.
Price Action: GameStop shares closed almost 0.8% higher on Wednesday at $209.81.
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