GameStop stock graduated to the Russell 1000 index on Monday.
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GameStop began the year with nine analysts covering the stock. Now only three remain with ratings after an analyst suspended his target, pointing his finger at social media and other nonfundamental factors that are moving the stock.
Baird analyst Colin Sebastian discussed the reasoning behind his decision in a note on Monday. He told clients that he is putting his Neutral rating and $25 price target on hold until management details its new business strategy so analysts can better forecast free cash-flow generation and assess intrinsic value.
Sebastian wrote that he recognized that GameStop (ticker: GME) is shifting rapidly from in-store videogame sales to e-commerce, but that he believes “share price volatility is tied more closely to non-fundamental trading, social media influences and other factors that make it difficult, at least in the near term, to make a reasonable stock rating recommendation to institutional investors.”
Shares were up roughly 3.5% to $216.86 in midday trading. The S&P 500 index was flat. Also on Monday, the stock graduated to the Russell 1000 index from the small-cap Russell 2000 index. The switch required all the Russell 2000 funds to sell the stock and all the Russell 1000 funds to buy.
Sebastian’s move leaves three analysts covering GameStop, according to FactSet. Edward Woo of Ascendiant Capital Markets has a Sell rating and a $10 target. Jefferies analyst Stephanie Wissink is a Hold and $190. In between is Wedbush analyst Michael Pachter with an Underperform rating and a $50 target.
GameStop’s wild ride began last summer when Chewy co-founder Ryan Cohen revealed a stake in the company. After upping his ownership to about 13% and urging the board to invest more in e-commerce, Cohen joined the board with two other former Chewy executives in January. That news, paired with a massive short interest, speculative options activity, and a social media movement, helped trigger a squeeze that sent shares soaring. Retail investors on social media sites like Reddit are still high on the stock, and are even buying shares of other out-of-favor companies like AMC Entertainment.
Since then, GameStop has recruited a new management team, bringing in a new chief executive, chief operating officer, chief technology officer, and chief growth officer, as well as dozens of other executives with e-commerce experience from firms like Amazon.com and Chewy.
The company also sold about $1.68 billion in stock at market prices, turned over its board, and eliminated long-term debt from its balance sheet, aside from $445 million in lease obligations that are classified as long-term debt for accounting purposes.
Though GameStop has outlined efforts to become the go-to e-commerce platform for gamers, such as investing in technology and expanding its product line, analysts have been waiting for more specifics such as financial targets.
Cohen, who is now board chairman, told shareholders in a June 9 address that his goals for GameStop are to delight customers and drive shareholder value long-term.
“We know some people want us to lay out a whole detailed plan today, but that’s not going to happen,” Cohen said at the time. “You won’t find us talking a big game, making a bunch of lofty promises or telegraphing our strategy to the competition—that’s the philosophy we adopted at Chewy.”
Write to Connor Smith at [email protected]
