Analysts Downgrade GameStop Stock Despite High Sales

GameStop Stock

GameStop (NYSE:GME) stock is among the most prominent losers last year, despite stunning financial performances. GME stock plunged from $24 at the beginning of last year to $12 at present, while analysts expect limited upside in the days to come. Bank of America Merrill Lynch has downgraded GameStop ratings amid concerns over the Q4 report that included part of the holiday period.

Analysts have also shown concerns over the company’s potential to achieve its own full-year guidance. BAML lowered GameStop price target to $11 with underperform rating. “2018 will be another tough year,” warns BAML analyst Curtis Nagle.

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GameStop posted same-store sales growth of 12.2% in the fourth quarter, higher from analysts’ consensus estimate for raise of 10.6%. Hardware sales jumped 45% Y/Y, and collectible sales increased 23% over the same period last year.

Mike Mauler, chief executive officer, stated, Our fourth quarter performance continued to demonstrate that GameStop is the preferred destination for the gaming and collectibles customer. Our strong sales performance over the holiday period and throughout the fourth quarter was driven by compelling Black Friday and holiday promotions, driving growth in hardware, particularly the Nintendo Switch.”

GameStop anticipates its revenue in the range of $8.84B and earnings per share around $3.45, in line with the consensus estimate.

The company has also announced that they aren’t seeking investments in new growth opportunities and acquisitions. Indeed, the management is planning to invest significantly in its three core profitable businesses to achieve its financial targets.

The CEO said, “I believe focusing on the basics of retail operational excellence across the organization will maximize our free cash flow, improve our performance and, ultimately, deliver returns for our shareholders.

However, investors aren’t happy with GameStop’s strategy of investing only in organic growth opportunities. GME stock has been declining steadily over the last twelve months. The differences between high-level management add to its share price volatility.

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