Activist investor Ryan Cohen has made some big bets on the stock market over the years, resulting in several huge winning trades, including a turnaround plan still playing out for video game retailer GameStop Corporation GME.
A new plan from GameStop could see Cohen's investments put to the test.
What Happened: Video game retailer GameStop reported third quarter financial results after market close Wednesday.
The company shared minimal details in its financial results and didn't hold a conference call with investors or analysts for the third straight time in the current fiscal year.
An earnings filing from the company shared a new initiative that could see Cohen making bets on stocks to improve the financial position of GameStop.
"We have traditionally invested our excess cash in investment grade short-term fixed income securities, which consist of U.S. government and agency securities and time deposits," the company said.
The company announced a change to this practice.
"On December 5, 2023, the Board of Directors approved a new investment policy that permits the Company to invest in equity securities, among other investments."
GameStop went on to say that Cohen will direct the investment activity of the company in public and private markets. At times, GameStop and Cohen may be investing in the same companies, according to the filing.
"Such investments align the interests of the Company with the interests of related parties because it places the personal resources of Mr. Cohen at risk in substantially the same manner as the Company in connection with investment decisions made on behalf of the Company."
GameStop ended the third quarter with $1.21 billion in cash. The company has no long-term debt outside a loan related to the COVID-19 pandemic.
Cohen, who has been an investor in GameStop for years, is the company's largest shareholder with around a 12% stake.
Related Link: ‘Meme King’ Ryan Cohen Gets Documentary Treatment With Stories Of Chewy, GameStop, Bed Bath & Beyond
Why It's Important: The decision to change its cash practices comes at a time that the company has improved its quarterly losses.
The company posted a quarterly loss per share of 1 cent for the third quarter, which came in ahead of a Street consensus estimate of a loss of 8 cents.
GameStop reported a loss of 3 cents in the second quarter and a loss of 14 cents in the first quarter. The company also reported a profit of 16 cents per share in the fourth quarter of last year.
This comes after the company reported losses of 52 cents, 35 cents and 31 cents per share in the first three quarters of fiscal 2022, respectively.
The move by GameStop follows Cohen’s earlier preaching on frugality to enhance the company’s financial health a few months back.
"Our job is to make sure GameStop is here for decades to come. Extreme frugality is required," Cohen said.
Cohen went on to say that the company has no room for money wasters, and he expected everyone "to treat company money like their own." With the potential of Cohen investing GameStop money in the same companies he's personally invested in, the quote from the GameStop CEO could be ironically true.
At least one analyst is skeptical of the move by the struggling company.
Wedbush analyst Michel Pachter, who has an Underperform rating, called the decision "one of the most inane moves we have ever seen," according to Bloomberg.
"Investors have a myriad of investment vehicles available to them and therefore do not need GameStop to act as a mutual fund," Pachter said.
Pachter said the decision was "alarming" as it implies GameStop management thinks it will post better returns by buying stocks other than its own.
Cohen previously invested in Bed Bath & Beyond and cashed out before the company declared bankruptcy, a move that prompted the attention of the SEC.
GME Price Action: GameStop shares were trading down Thursday morning on the earnings news, but are now moving higher on the findings of the company's investment decision. GameStop shares are up 6.3% to $15.77 Thursday, versus a 52-week trading range of $11.82 to $27.65.
Photo: Courtesy of Bill Jerome on Flickr and Shutterstock.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
Comments
date | ticker | name | Price Target | Upside/Downside | Recommendation | Firm |
|---|
Trade confidently with insights and alerts from analyst ratings, free reports and breaking news that affects the stocks you care about.
