GameStop Runway Narrows After Q4 Results: 'We Expect The Company's Demise At Some Point Later This Decade'

Video game retailer GameStop Corporation GME reported fourth-quarter financial results Tuesday after market close that saw revenue and earnings per share come in shy of estimates from analysts.

Here's what one analyst is saying after the latest quarterly report.

The GameStop Analyst: Wedbush analyst Michael Pachter has an Underperform rating and lowers the price target from $6 to $5.60.

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The Analyst Takeaways: Positive industry trends and an extra week in the quarter couldn't help the video game company grow revenue, Pachter said.

"GameStop delivered a large sales decline as it continues to deal with a mix shift in software sales, declining hardware sales, fewer large console releases, and the growth of subscription services," Pachter said.

Pachter added that there is one "silver lining" for GameStop as it reports losses.

"The silver lining is that cash burn and losses appear to be manageable going forward. With its current cash balance, GameStop can weather $100 million of annual losses for a decade or more."

The analyst cautioned that GameStop's revenue could decline by $150 million to $200 million a year due to lost game sales, which would put its cash in jeopardy without a clear strategy to make up for the sales and cut costs.

"If we're right, GameStop has a likely runway of no more than five years. The demise of GameStop is outside the 12-month window we use for our price target, but we expect the company's demise at some point later this decade."

The analyst's price target reflects a current cash value of around $4 per share along with $1.60 per share coming from the valuation of the company.

GME Price Action: GameStop shares are down 15% to $13.22 on Wednesday versus a 52-week trading range of $11.83 to $27.65. Shares of GameStop are down 42% over the last year.

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