A GameStop Corporation (NYSE: GME) analyst is questioning why the video game retailer is trading at a premium to its cash as it works through managing operating losses, but provided no strategy in its second-quarter earnings report.
The GameStop Analyst: Wedbush analyst Michael Pachter reiterated an Underperform rating on GameStop and lowered the price target from $11 to $10.
The Analyst Takeaways: The video game retailer shows a sequential improvement to profit in the second quarter, Pachter said.
The analyst is skeptical of GameStop's future with a lack of strategy or concern for shareholders.
"While we admire GameStop's ability to manage operating losses, we think it would be just as reasonable for management to close all of its stores and operate as a bank," Pachter said.
GameStop has around $10 per share in cash and shares trade for roughly two times that figure, Pachter added.
"Without a hint of any strategy that would reasonably deploy capital, we do not see why shares trade at 2x cash."
The video game retailer announced accelerated store closures, but without more commentary on strategy, Pachter said the company is "no longer beholden to shareholder interests."
Pachter said the store closures will result in further revenue declines and could also hurt profitability.
GameStop faces headwinds of the shift of physical video games going digital, declining video game sales, growth of subscription services and hardware sales declining, the analyst added.
"GME shares trade at a level that ignores the company's many challenges ahead."
The $10 price target from Pachter covers the cash level of the company. The analyst once had a $1.50 price target before cash raises with the company viewed with short-term bankruptcy risks.
"Without any indication that the company plans a turnaround, we remain reluctant to assume that it can and will. Instead, it appears to be moving further away from any shareholder accountability."
GME Price Action: GameStop stock is down over 14.7% to $20.03 at last check on Wednesday versus a 52-week trading range of $9.95 to $64.83. GameStop shares are up 25% year-to-date in 2024.