Shares in video game retailer GameStop (GME) retreated over 20% today after investors threw down their consoles in fear over its plans to spend billions of dollars on Bitcoin.
Euphoria Cools Down
GME was down 23% after it announced a move to allocate a portion of its $4.77 billion cash pile – around $1.3 billion in convertible senior notes – on the cryptocurrency.
The announcement that it was going to hold the currency as a treasury reserve asset had caused quite the upbeat stir among retail investors who are fans of the so-called “meme stock.”
However, now that euphoria has calmed down a little, investors seem to have focused more closely on GameStop’s restructuring plans. It revealed on Tuesday that it was closing a “significant number” of additional stores this year. This seems to signal that its retail business is continuing to struggle despite attempts to turn it around. GameStop has 3,203 stores in the U.S., Canada, Australia, New Zealand, and France.
Questions Over Business Model
Also on Tuesday it reported that for the quarter ended February 1, it recorded net sales of $1.28 billion, down 28% from a year earlier and below the $1.48 billion analysts had expected from the company. However, its earnings per share (EPS) of $0.29 beat the $0.08 expected on Wall Street.
“Investors are not necessarily optimistic on the underlying business,” said Bret Kenwell, U.S. investment analyst at eToro, as reported by Reuters. “There are question marks with GameStop’s model. If Bitcoin is going to be the pivot, where does that leave everything else?”
The timing of the purchase has also been questioned given the high levels of volatility seen in cryptocurrencies in recent months.
Is GME a Good Stock to Buy Now?
On TipRanks, GME has a Moderate Sell consensus based on 1 Sell rating. Its highest price target is $11.50. GME stock’s consensus price target is $11.50 implying a 46.61% downside.
