GameStop Corp (NYSE: GME) develops and sells games and entertainment products through its retail stores and e-commerce website in the USA, Canada, Australia and Europe. GameStop was founded in 1996, headquartered in Grapevine, Texas. Mr. Ryan Cohen is the present CEO and Executive Chairman of the company.
It deals in gaming accessories such as controllers, gaming headsets and virtual reality products, new and pre-owned gaming softwares, in-game digital currency, digital downloadable content and full-game downloads. GameStop owns stores and websites under the banner GameStop, EB Games and Micromania Brands and pop cultured theme stores which sell collectibles, apparels, gadgets, electronics, toys and other retail products. Other than this, it offers Game Informing magazine in print and digital versions.
Stock Price Analysis
GME stock is currently trading near its 52-week low at around $14.91 with very low sales volume that might lead to a further decrease in the stock price of GME shares. The last bullish trend that was in July, which was because of an increase in buying volume on a particular day led to an increase in share price movement by 10 points. It is the most volatile day of the year and since the GME stock has not crossed the upper range of $27.
Comparing Forecasts with the Actual Results
As per the last results that were announced, GME has performed better than the expectations. Looking at the EPS expectations, GME has exceeded its expectations by 78% resulting in an EPS of $-0.03, while it was expected to be $-0.14. Apart from these, GameStop has also exceeded its expectations for revenue by 1.75% from $1.14 Billion to $1.16 Billion. Despite exceeding its forecasts, GME financials could not attract enough stock volume, nor create a long bull candle which is a negative sign for the stock price of GME. Gamestop is not able to add enough value for its existing share-holders to attract new shareholders.
Increase in Net Profit Margin from -9.57% to -0.24% in a year
Barring Q4 2022, revenue has been stable for quite some time. Company is trying to reduce its operating costs to improve its profitability as said by its management in last quarter’s financial reports. This is also visible in its financial results. GameStop Corp brought down its net profit margin from -9.57% to -0.24% in a year and is expected to result in positive profitability in the next quarter.
Looking at the trend in operating income (loss) the path for GME looks rough, however, the company is trying to achieve profitability. Comparing operating profit margin with net profit margin, operating profit margin is much less at -1.43% (in Amount: $16.60 Million). Looking at the difference in operating profit margin and net profit margin, it is hard to support Management’s view of achieving sustainable profitability by the end of this quarter.
Another negative sign in GameStop’s financials is negative operating Cash flow. Cashflow used in operating activities is increased from $102.7 million to $211.8 million in a quarter i.e, it increased by more than 100% as a result of cash used in Net working capital increased by more than 150% which is not in line with the company’s approach of decreasing costs of operations.
Despite all the negative signs, the company is managing a healthy current ratio of 1.87x which shows the capability to pay all the short term liabilities and cover all the working capital expenses which can support the GME’s objective of improving its profitability.
GameStop is holding only 1.5% of its total liabilities in the form of Long term Debts which is a positive sign for the company as it will not absorb huge cash as payment towards debt holders in the form of interest and principal repayment. It can be further confirmed by the debt to equity ratio which is 0.018x which means that GME is mostly funded by its shareholders.
Increase in Profitability Will Add Value for GME Stockholders
If the management of GameStock is able to achieve their desired goal of positive profitability in the financial year, then it will add value for the shareholders. According to the funding pattern of the company, they need not share much of their profits with the creditors. This sound funding is also helpful for the company as low number of creditors won’t lead to any legal actions despite the negative profitability in the last four quarters out of five.
Nancy J. Allen is a crypto enthusiast and believes that cryptocurrencies inspire people to be their own banks and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning.
Source: https://www.thecoinrepublic.com/2023/10/17/gme-stock-not-attracting-buyers-despite-increasing-profitability/