GameStop (GME) Fundamentals Remain 'Detached' from Reality - BofA

March 12, 2021 10:11 AM EST
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Price: $154.69 -1.12%

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    3 Buy, 11 Hold, 8 Sell

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BofA Securities analyst Curtis Nagle wrote Friday that GameStop (NYSE: GME) share price continues to remain "very detached" from fundamentals with the latest physical game sale data confirming this.

Nagle notes while February software sales were up 38%, physical game share continues to sink. The analyst notes that for every PS5 and Xbox Series X/S console sold so far, only 0.64 physical games have been sold (0.65 last month). This comes as digital penetration continues to surge. EA said their digital sales were 62% on its third-quarter call.

On next-generation consoles, the analyst notes volume remains constrained.

While February software sales were strong, Nagel expects software comparisons to get "considerably harder over the next six months." He sees this as a headwind for overall software sales and GameStop which has struggled with share loss.

On GME's stock price, the analyst notes shares took another leg up after appointing Ryan Cohen to lead a team focused on the company's technology and e-commerce transition. This also coincided with another big increase in retail investor interest and trading, Nagle noted.

"While Cohen no doubt brings much needed expertise to GMEs go-forward strategy, we still do not see how it addresses the issue of GME's software businesses migrating to online networks where GME plays an extremely limited role as an intermediary," Nagel commented.

The analyst reiterated an Underperform rating and a $10 price target on the stock.

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