GameStop's Short-Term Sales Boost To Power Down Soon, Analyst Says

The recent trend of elevated gaming software and hardware sales is expected to reverse soon, and be replaced by online sales and digital downloads, which spells a limited benefit for GameStop Corp. GME.

The GameStop Analyst

BofA’s Curtis Nagle maintained an Underperform rating for GameStop, with a price target of $1.60.

The GameStop Thesis

The spike in gaming software sales in March was most likely driven by gamers and maybe even non-gamers stocking up ahead of the stay-at-home orders across the US, Nagle said in the note. However,  there is likely to be sharp reversal over the coming months, as gaming sales return to being online and as digital downloads.

Online sales represent less than 10% of GameStop’s total sales, the analyst said. He expressed concern around the success of the company’s new “delivery@door” service, as games can easily be downloaded at home.

GameStop has a weak title slate for this year and is likely to witness a decline in hardware units, as “we are in late stages of the current gaming cycle,” Nagle wrote.

The stock had doubled since hitting a low on April 3, versus a 13.4% rise in S&P 500, and the market seems to be “significantly mispricing” the risk from declining earnings and cash flows and structural headwinds.

GME Price Action

Shares of GameStop had plummeted 12% to $4.92 at time of publication.

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