Shares of video game retailer GameStop Corporation GME have traded higher in recent weeks on optimism from the return of Roaring Kitty (aka Keith Gill) and several share offerings raising cash for the company.
One analyst shared his take on the latest events and recent share offering.
What Happened: Over the past 30 days, GameStop completed two at-the-market offerings, selling batches of 45 million and 75 million shares.
The most recent sale of 75 million shares raised $2.137 billion, which translated to an average share price of $28.50.
Wedbush analyst Michael Pachter criticizes the sale price in a recent investor note.
"Given that GameStop's share price closed at $46 on June 6, we had assumed it would complete the sale at an average price of $40. Instead, the shares declined precipitously on June 7, reflecting news from Reddit following a rambling presentation by Roaring Kitty (Keith Gill)," Pachter said.
The analyst has an Underperform rating and lowered the price target from $13.50 to $11.
Pachter said the new price target reflected the "lower-than-expected proceeds from the share offering." The analyst estimated GameStop had around $9.50 per share in net cash.
On Wednesday, Citron Research also announced it was no longer short GameStop.
"It's not because we believe in a turnaround for the company fundamentals will ever happen, but with $4 billion in the bank, they have enough runway to appease their cult-like shareholders," Citron's Andrew Left tweeted.
Left previously told Benzinga he was short GameStop shares again. Left was one of the key figures in the 2021 short squeeze of GameStop shares.
Related Link: Who Is Roaring Kitty? Why Does His Return To Social Media Matter For GameStop Stock?
What's Next: The offerings from GameStop draw mixed comments from Pachter and Left as the video game retailer may have taken advantage of the rising share price from increased trading activity in recent weeks.
GameStop has said it will use the net proceeds from the offering for "general corporate purposes, which may include acquisitions and investments."
Investors appear excited about the potential of acquisitions and investments, with trust from many GameStop shareholders, including Roaring Kitty, being placed in the turnaround strategy from CEO Ryan Cohen.
The two at-the-market share offerings raised $933.4 million and $2.137 billion respectively, adding $3 billion to the balance sheet of GameStop.
GameStop ended the first quarter on May 4 with $1.083 billion. The company previously said its cash balance was $1.2 billion at the end of the fourth quarter.
The cash balance could provide optimism for several reasons. First, the possibility of investments and acquisitions. With a shift to digital games, GameStop could look to diversify itself away from physical games for future growth.
Another item to keep in mind is the GameStop announcement last year that CEO Cohen now has additional control over the company's cash holdings. Cohen can buy and sell stocks and make other investments.
"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," the company said previously.
GameStop's filing didn't mention cryptocurrency like Bitcoin BTC/USD, but investors are excited for the potential for cryptocurrency investment. Investors would love to see Cohen invest a portion or all of the company's cash into Bitcoin and turn GameStop into a similar trading vehicle to MicroStrategy, whose former CEO and current Chairman Michael Saylor began buying up Bitcoin with the company's cash.
As mentioned by Left, the new cash balance could help provide a runway for shareholders.
GameStop reported adjusted net income of $6.7 million in fiscal 2023, which was an improvement from a loss of $13.1 million in 2022.
The company struggled in recent quarters with losses, but several quarters have witnessed positive earnings per share.
Here are the most recent quarters with data from Benzinga Pro:
Q1 2024: -$0.12
Q4 2023: $0.22
Q3 2023: $0.00
Q2 2023: -$0.03
Q1 2023: -$0.14
With the new cash balance, GameStop now has more potential to survive from future losses. The cash balance gives the company the opportunity for acquisitions and investments, but more importantly, the ability to not borrow or potentially not have to raise more capital in coming years.
Investors are eagerly awaiting details of what GameStop will do with the cash in the coming months, but right now many, including Roaring Kitty, are betting Cohen will make the right moves.
GME Price Action: GameStop shares are down 1.87% to $29.92 on Wednesday versus a 52-week trading range of $9.95 to $64.83.
Read Next: 5 Ways The GameStop, Meme Stocks Rally Could Fizzle: Stock Offerings, Boredom And More
Photo: Shutterstock
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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