GameStop trends ahead of earnings. But this Wedbush rating spells trouble for the stock

If you love stocks, you already know how much enthusiasm GameStop Corp. (NYSE:GME) elicits. It’s a loved meme stock, and it is easy to see why it trended on social trading networks on Tuesday. The company reports earnings on December 07, 2022, after the market close, and retail traders can’t keep calm. Nevertheless, the stock lost nearly 2% on the day. But just how good will the results be?

According to Wedbush analysts, GameStop could surprise Wall Street when it reports earnings on Wednesday. Wedbush says the video game retailer could beat sales estimates in the third quarter. The analysts project up to $1.41 billion or £1.156 billion in sales. The sales will be ahead of the market consensus of $1.35 billion or £1.11 billion. That would represent a sales increase of 8.7% from the prior year.

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However, you may be disappointed if you expect GameStop to post a profit or even narrow it down in Q3. Wedbush says the company’s loss per share will come at $0.35 per share, worse than a projected $0.28 per share loss. The analysts attribute the loss to an ongoing free cash flow burn, expected at $100 million.

Wedbush is also warning gamers ahead of the earnings. The analysts say GameStop’s transformation effort has failed to bear fruits so far. That potentially refers to actions to transform the firm into a digital business onboard the now-collapsed FTX exchange. Recent stock market news has suggested that GameStop has initiated layoffs, including teams working for its blockchain wallet.

Wedbush analysts have an underperforming rating on the stock, with a $6 price target. GME traded at $24.58 as of press time. Further crash?

GME holds strong to support at $24

GME Chart by TradingView

From the daily chart, GME holds to the support at $24. However, the MACD indicator shows momentum is weakening. Similarly, the RSI has dropped below the midpoint, suggesting a bear market. 

What to watch for?

The announced results versus the projections will help investors determine if to dump or buy GME. The company’s guidance and investor presentation will also be highly watched. 

Regardless, $24 will be the level to watch for recovery or a break below based on the quarter results and statements.