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Gamestop stock falls on mixed quarterly results

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Michael Pachter, Wedbush Securities Equity Research Analyst, talks Gamestop earnings after company posted narrower loss and rising sales.

Video Transcript

- But let's turn our attention to one of the headlines. A lot of investors are watching, and that is GameStop. You see it going down nearly 7% in the session. GameStop's losses narrowed in the most recent quarter, but that hasn't that's done little to stem the bleeding on the stock.

The company failed to provide an outlook and executives also refused to take questions during the earnings call. And you see their performance in the most recent quarter. Let's bring in Michael Pachter, Wedbush Securities equity research analyst. Michael, we always love talking to you about GameStop.

I know you've got strong opinions on the company. But let's try to push this forward looking. The losses did narrow, that seems to point to a good sign for where the company is going. Why do you think the stock is sliding today?

MICHAEL PACHTER: You know, I've been Street high with my earnings estimate for at least a couple of years. It was clear when we saw new consoles launch in the fall of '20 that we were going to get a big boost in sales for GameStop. And it was equally clear that old management was going to cut back the number of stores.

New management's continuing to do that. So they're really well positioned to be profitable. I have them making $1.40 in 2023. So I think that's probably about right. And they have $23 in cash. So a reasonable multiple on that gets you to around a $50 price target.

The stock is trading at a multiple of that. So investors somehow either believe that they're going to more than double their sales, and I don't know where that growth's going to come from, or they're going to quadruple their operating margin.

And I don't know how anybody believes that GameStop is going to be the best retailer on the planet, generating 10% operating margins. So you know there's a lot of faith in Ryan Cohen, and he's obviously accomplished a lot. He's picked a really good management team, and maybe there's a strategy there. But if they told us the strategy, they'd have to kill us.

So I think investors are selling off the stock today because they promised this strategy back in January. And this is the third consecutive earnings call that they failed to deliver one.

So we don't really know what it is. I'm beginning to suspect there isn't one, the strategy is be like Amazon. And God bless them, I hope they make it.

- Be careful what you're saying here, Mr. Pachter, you're going to have the Reddit crowd coming after you. But I think it's fair. It's a fair criticism. You know, it's been a while. And I'm not going to say that there's not a fundamental case here around GameStop, because I also wouldn't want to make that crowd angry.

But we have seen volatility here kind of-- it swings almost crazily. And so I mean, it does kind of indicate that there's more than just fundamentals, because we don't learn that much on a day to day basis to kind of justify that volatility. We also heard from AMC almost simultaneously here talking about a potential partnership with GameStop.

And I know you've been critical about a lot of these maybe marketing moves before when it comes to kind of valuing these stocks. I mean, what do you make of that and whether there's any real meat to that?

MICHAEL PACHTER: Well, first of all props to Adam Aron. I think he's an excellent CEO at AMC. I think he is really enlightened by capitalizing on the retail investor interest. And I think he's been refreshingly candid, telling them he's going to sell stock. But he's managed to sell into this strength and help his balance sheet quite a bit.

I laughed when I saw that headline because I'm old enough to remember back in 2008 when Blockbuster reached out and made an unsolicited bid for Circuit City for $1.3 billion. And I remember being on Jim Cramer's show saying you know it was like the Titanic merging with the Hindenburg. I don't think that AMC and GameStop were in as bad as shape as the Titanic and the Hindenburg.

But it's funny to see two slow growth or no growth retailers trying to get together and find some commonality. And I doubt it will go anywhere. And frankly, I think Ryan Cohen is, you know, as much-- he's confident enough that he doesn't think he needs anybody else to help him with the strategy. So I don't see that going anywhere, but it did make me laugh.

- Michael, when you think about the performance of GameStop, obviously off of the highs that we saw in January at the height of the meme trade. But it's still at $184 a share. And I know you've got pretty low-- you had a pretty low target the last time we spoke to you. How much lower do you think it goes?

And it's truly about, like you said, the company has just not offered a strategy for moving forward and pushing growth beyond what it has been, which is stagnant.

MICHAEL PACHTER: Well, you know my $50 target applies a Best Buy at multiple. And Best Buy right now is best in class of kind of slow growth, no growth retailers. You know, nobody thinks Best Buy is going to dominate and take over from Amazon.

But they're definitely doing a great job with a really strong service offering. And it trades at about a 19 multiple plus cash. So I apply that to GameStop, I get to 50 bucks. You could convince me that Ryan Cohen was going to double earnings. And I could maybe get to $85. You know, triple earnings I could get to $120.

But I just can't get up here. I don't know how he's going to generate $10 a share in earnings to justify a $185 share price. So it's not happening. And again, maybe he'll surprise me. He'll give us a strategy.

He won't have to kill us. And it'll be brilliant, and we'll say my God, they're going to take over the world. Great, let's hear it.

- Yeah, I feel like although the farther and farther along this goes, you do want to start to hear some details in terms of those plans. And as we're seeing here with shares under pressure, maybe the time is running short. But Michael Pachter, Wedbush Securities equity research analyst, always love having you on. As Akiko said, you've got to come back soon. Be well, sir.