A GameStop analyst is raising eyebrows about the video game retailer’s current valuation. Wedbush analyst Michael Pachter has reiterated an ‘Underperform’ rating on GameStop and slashed the price target from $11 to $10. Pachter’s concern stems from the fact that GameStop’s stock is trading at twice its cash value, despite the company’s ongoing struggle to manage operating losses. While acknowledging GameStop’s ability to navigate these challenges, Pachter believes a more sensible approach would be to close stores and operate primarily as a cash-rich entity.
Pachter emphasizes the lack of a clear strategy within GameStop’s operations. He argues that the company’s recent accelerated store closures, while a move towards cost reduction, do not provide any insight into its future direction. Without a roadmap for capital deployment, Pachter questions the justification for the current stock price. He argues that the company’s actions seem to prioritize short-term financial management over long-term shareholder value.
Adding to his concerns, Pachter highlights the headwinds facing the gaming industry, including the shift towards digital games, declining video game sales, and the rise of subscription services. These factors, he believes, will only exacerbate the challenges GameStop faces.
Pachter’s $10 price target reflects his view that GameStop’s value is essentially limited to its current cash reserves. This stance stands in contrast to his previous $1.50 price target, a figure he assigned before the company’s recent cash infusions, a period where he anticipated short-term bankruptcy risks.
GameStop stock, which has been a volatile entity for several years, is down significantly since Pachter’s latest assessment. While the company’s shares have experienced a 25% year-to-date increase in 2024, recent market reactions to Pachter’s analysis suggest a growing concern among investors regarding the company’s future prospects.
