BofA analyst Curtis Nagle raised the firm’s price target on GameStop to $10 from $1.60 and reiterates an Underperform rating on the shares. The stock in premarket trading is up 44%, or $65.52, to $213.50. The shares have risen “spectacularly on what media reports describe as a major short squeeze, in part enabled by extreme retail investor enthusiasm,” Nagle tells investors in a research note titled “The gravity of GME’s earnings will likely weigh on shares again.” The 642% rally since January 12 is despite years of “very weak” performance, including this holiday, says the analyst.
He believes enthusiasm over a potential turnaround helped in part by new board member Ryan Cohen “will not be nearly meaningful enough to offset structural pressures that will likely accelerate in this console cycle.” Nagle, who remains skeptical on GameStop’s potential for a turnaround, admits that the recent share price momentum is likely to provide support in the near-to-medium term. However, he thinks fundamentals “will again factor into valuation” at some point. COVID has helped accelerate GameStop’s online sales to 30% of total from under 10%, but a higher mix to online is a negative for earnings, says Nagle. The more business that shifts from in-store transactions, the more difficult it will be for GameStop to sell high margin pre-owned and collectibles merchandise, the analyst contends.