Gamestop Stock Price and Forecast: GME earnings report shows huge EPS miss

GME stock had rallied on Tuesday as risk-on appetite returned to markets.
GameStop reported earnings after the close on Wednesday.
GME earnings were mixed with a huge miss on EPS.

Ivan Brian FXStreet

GameStop had returned to meme trader attention on Tuesday after a decent rally saw retail and meme names finally catch up to the mainline space. Retail traders were slightly more cautious in returning and waited for confirmation that the market was indeed recovering before returning. The market recovery was led by large tech and reopening stocks, while the traditional meme space did not participate on Friday and Monday. This all changed on Tuesday as meme momentum returned. GameStop (GME) rallied and looked set for more gains until last night's earnings release.

GameStop (GME) chart, hourly

As we can see, the decline for the past two weeks is running close to 30%.

GameStop (GME) stock news

GameStop (GME) earnings were poor. There is no way around that. While revenue did come in slightly ahead of expectations, earnings per share (EPS) was miles behind. Revenue came in at $1.297 billion versus the $1.19 billion estimate. However, GameStop's EPS came in at -$1.39 versus $-0.52 expected. This is a miss of over 160%.

Looking back over GameStop's EPS reports, it is extremely volatile, while revenue is more consistent. This does lead to questions over financial control within the company. If revenue can be reasonably forecasted, what is happening thereafter?

It appears the company is loading up on inventory in anticipation of pent-up demand finally coming through. Inventory was at $1.15 billion versus $860 million last year. GameStop (GME) does have very little debt now, currently only at $46 million from a term loan. The company has $1.4 billion in cash. The test will be to see if this inventory build reduces and flows straight to the bottom line for the next set of earnings. If not, then serious questions need to be raised.

GameStop (GME) stock forecast

GME is currently trading below all major moving averages, so it is clearly bearish in long and short-term time horizons. There is decent resistance from the 200-day moving average at $188. This earnings report does not look like enough to push the stock to test that, but this is a momentum name rather than a fundamental play. If momentum returns, that is the first level to watch for.

GameStop has put in a new low in breaking the $167 lows from October and November, but crucially it did not close below there. If it does, then that is another bearish signal and will lead to $146 and the strong low at $118.59. Technically, it is bearish below the 200-day moving average, making new trend lows and now a miss on EPS. Holding below $188 is key to more losses in our view.

GME 1-day chart

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Author

Ivan Brian

FXStreet

Ivan Brian started his career with AIB Bank in corporate finance and then worked for seven years at Baxter. He started as a macro analyst before becoming Head of Research and then CFO.

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