Dilution could be on the minds of GameStop (NYSE:GME) investors as shares of the meme-prone video game retailer fell as much as 15% in Monday’s pre-market trading. Management said that it may sell up to $1 billion in additional GME stock in an offering program.
The drop belies other news from GameStop, which also announced on Monday morning that preliminary sales results for the first nine weeks of FY2021 showed an approximately 11% increase compared to the prior-year period. The retailer said sales for the five-week March 2021 period increased approximately 18% YOY.
After a volatile March, it could be that April brings more of the same for GME investors. The company said it could sell up to 3.5 million shares and intends to use any proceeds to “further accelerate transformation” and strengthen its balance sheet.
There’s likely a connection between that share volatility and the transformation. Activist investor and new board member Ryan Cohen has stoked changes in the C-Suite as he pushes the once-sleepy retailer away from its brick-and-mortar business.
GME Stock Remains a Stonk Fave
Transformation aside, recent months have seen GME stock surge as retail investor momentum pushed short-sellers to cover their bets. A high short percentage, combined with a flurry of retail investors buying in tandem, did indeed appear to lead to a short-squeeze in late January.
Those gains also fueled speculation on a new share issuance. InvestorPlace contributor Chris MacDonald noted last week that such a move shouldn’t surprise anyone.
“Indeed, a stock that goes from roughly $4 per share a year ago to nearly $200 per share at the time of writing provides a great opportunity to raise some money. Any company’s management team has a duty to maximize shareholder value. Accordingly, an unwritten rule is to issue shares when a company’s share price is overvalued. Vice-versa, buying back undervalued shares is a great idea.”
On the date of publication, Robert Lakin did not have (either directly or indirectly) any positions in the securities mentioned in this article.
InvestorPlace contributor Robert Lakin is a veteran financial writer and editor, following fintech, agtech and property tech startups.