Shares of GameStop (GME) continued to tick higher in trading on Wednesday, despite the meme stock reporting mixed third-quarter results. Let’s look at what is driving the rising momentum for the stock. The company swung to a profit of $0.06 per share in the third quarter. This was much better than analysts’ expectations of a loss of $0.03, even though sales fell short. The video game retailer’s net sales dropped 20% year-over-year to $860.3 million, below the consensus estimate of $888 million.
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GME Completed Its Stock Offering in Q3
Additionally, GameStop stated that it completed a previously disclosed equity offering during the third quarter, selling 20 million shares of its stock. Importantly, the retailer also announced that it doesn’t plan any further offerings for the remainder of this Fiscal year.
GME Stock Is on the Rise This Year
Despite the drop in revenue, GameStop’s shares have risen since the earnings announcement and have soared by more than 90% over the past year, recording the stock’s best performance since 2021, when it surged 688%, according to a Barron’s report citing Dow Jones Market Data.
What Is Fueling the GME Stock Momentum?
The stock’s momentum this year has been partly driven by the return of Keith Gill, known as Roaring Kitty, to social media. His reappearance in May reignited retail investors’ interest in the stock, similar to the 2021 meme-stock phenomenon that sent GameStop shares soaring.
Interestingly, the TipRanks Technical Analysis for GME stock over the past month shows it as a Strong Buy, with one Bearish, six Neutral, and 13 Bullish signals.
GME’s Unusual Option Activity Is Picking Up
Furthermore, the TipRanks Options tool shows unusual option activity for the stock. Specifically, two tranches of call options with expiration dates of December 13 and strike prices of $38.50 and $37.50, respectively, are trading at higher volumes compared to the contracts’ open interest, signaling a bullish sentiment. Open interest refers to the number of outstanding option contracts for the stock. A high volume-to-open interest ratio indicates that the unusual activity is significant relative to existing interest in those options.
Unusual options activity often signals new positions and potentially a big move in the underlying asset. A call option is a contract where the seller grants the buyer the right to purchase the underlying asset at a pre-specified price (strike price) by a specific date (expiration date).
Key Takeaway
GameStop’s recent stock rally stems from its unexpected Q3 profit and renewed retail interest, driven by Keith Gill’s return to social media. While sales fell short, the company’s decision to halt equity offerings and strong options activity have boosted confidence. Despite these positive signs, ongoing revenue challenges raise questions about the sustainability of the stock’s momentum.
Is GME a Good Buy Right Now?
Analysts don’t seem to consider GME stock a Buy and only one analyst has covered it over the past three months, rating it as a Sell. The average GME price target of $10 implies a downside potential of 65.5% from current levels.
