Why Is GME Stock Plunging Ahead of GameStop Earnings?

  • GameStop (GME) will report Q2 earnings tomorrow after the bell.
  • Analysts are expecting revenue of $1.27 billion and an EPS loss of 38 cents.
  • GME stock has closed lower five times the day after earnings in the past eight quarters.
GME stock - Why Is GME Stock Plunging Ahead of GameStop Earnings?

Source: Northfoto / Shutterstock.com

GameStop (NYSE:GME) stock closed lower by 8% as the company prepares to report Q2 earnings tomorrow after the market close. There is no company-specific news to explain today’s decline, but it appears that GME stock investors are getting cold feet ahead of earnings. Pressure from meme stock counterpart Bed Bath & Beyond (NASDAQ:BBBY) following the death of CFO Gustavo Arnal may also be spilling over.

The S&P 500’s decline of about 0.5% today is also adding pressure to the video game retailer. It’s worth mentioning that GameStop trades at a hefty price-sales (P/S) ratio of 27.4x, while the S&P 500 trades at just 2.4x.

GME Stock Falls Ahead of Q2 Earnings

For the quarter, analysts are expecting revenue of $1.27 billion and an earnings per share loss of 38 cents. The revenue estimate implies year-over-year growth of 7% compared to revenue of $1.18 billion a year ago. During Q2 2021, the company reported an EPS loss of 19 cents. In the past five quarters, GameStop has exceeded revenue estimates four times.

In the past eight quarters, GME has closed lower the day after reporting earnings five times. In the same time frame, shares of the company have moved an average of 15% in either direction the day after earnings. However, the options market is pricing in a 19% swing following Q2 earnings. Options traders appear to be bullish on earnings. In the past 10 days, traders have purchased 2.5 call options for every put option bought on three options exchanges. 

On the other hand, analysts don’t appear to be optimistic. GME has an average price target of $13.58 among three firms, with the lowest target at $5.75 and the highest at $27.50. The most recent analyst update is attributable to Wedbush’s Michael Pachter. During July, he lowered his price target to $7.50 from $30, citing layoffs and a disconnected stock price. Pachter is also skeptical of the company’s turnaround plan and entrance into the non-fungible token (NFT) industry. Using sum-of-the-parts (SOTP) analysis, the analyst attributes his price target to $3.50 of cash, $2.5o of going concern, and $1.50 for the NFT exchange.

On the date of publication, Eddie Pan did not hold (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.

Eddie Pan specializes in institutional investments and insider activity. He writes for InvestorPlace’s Today’s Market team, which centers on the latest news involving popular stocks.

Article printed from InvestorPlace Media, https://investorplace.com/2022/09/why-is-gme-stock-plunging-ahead-of-gamestop-earnings/.

©2023 InvestorPlace Media, LLC