GameStop Earnings Preview

Meme stocks still seem to be riding the rollercoaster with retail traders pushing against
professional analysts and forecasters.

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The disconnect

Last week, GameStop shares spiked 65% in a span of two days, after tumbling over 60% in the
previous month, but soaring 120% in April. The stock remains incredibly popular with retail
traders, which allows for these massive gains.

The company itself is loss-making, and therefore no P/E, making it one of the highest risk
speculative stocks out there. To make matters worse, earnings have been falling further into the
negative. It's no surprise that traditional analysts aren’t all that optimistic.

The firm did manage to reverse years of falling revenue with a massive increase in sales during
Q4 2021. But first-quarter sales are forecast to return to the mean. GameStop is expected to
report quarterly sales of $1.3B, substantially lower than the $2.3B QoQ. Where there is a
positive note in the forecasts is that even though EPS is expected to be much lower than last
year, it is forecast to be slightly higher than the prior quarter at -$1.45.

What to look out for

Forecasting the reaction of the market to earnings can be particularly challenging given the
meme-stock nature of price fluctuations. Reddit traders pay attention to different factors than
traditional analysts!

One of the issues that the company has to deal with is the influx of cash from all the attention
needed to reorient the firm away from a business model that caused traditional analysts to short
it during the pandemic.

Last quarter, the company doubled its cash reserves and expanded inventory. Normally this
would be a good sign, but it appears GameStop is struggling to expand into a newly lucrative
area. This is why investors could be focused more on the CEO's comments about where the
company is expected to go, than any of the underlying financials.

GME is halfway up to the gap

There is a gap between $287 and $292, which sits at nearly double the current GME share
price. Were this gap to be filled, it would mean a near-doubling of the price from current levels.

GME is now testing the $482-255 bearish trendline that began at $482 and crossed through the
$255 peak, as well as the 50-day moving average. What remains to be seen then, is whether
traders can maintain prices above $130. A failure at the trendline brings $50 back into the game
plan.

Key takeaways

GameStop is on the popular side of speculative stocks, but with no P/E and falling quarterly
earnings analysts are not optimistic. The meme stock is still sought-after with retail traders
though. If a bear market rally in stock indices began last week, meme traders could gravitate to
GME for the possibility of outsized gains.
The firm expanded its cash reserves and inventory, but it is still struggling to expand to new
areas. Investors may focus on the CEO’s comments about the firm’s expansion plans, but with
retail traders paying attention to different factors, the stock can react in unpredictable ways.