GameStop Corp.’s Reddit-fueled trading surge is likely going to fade as threats from digital game downloads sink in, according to one skeptical Wall Street analyst.
Ascendiant Capital Markets analyst Edward Woo downgraded shares of the retailer to sell from hold, saying increasing digital sales for video game publishers is a looming risk given GameStop’s minimal market share. He warned clients in a note about the long-term prospects for the company’s video game business as the market for new gaming systems matures after new launches from Microsoft Corp. and Sony Group Corp.
The video-game retailer’s 741% surge this year has pushed its market value to $11 billion, however, Woo expects shares will tumble in the long run “to match its current weak results and outlook.” He trimmed his price target to $10 from $12, implying as much as a 94% drop from Friday’s close at $158.36.
Ascendiant called out the rise in popularity of GameStop on Reddit chat boards and with Robinhood investors for making shares trade on “retail investors sentiment, hope, momentum, and the powers of crowds” in place of fundamental metrics. Woo did acknowledge the mania can drive shares much higher in the near-term, making short-term price forecasts “nearly impossible.”
The stock now has five sell-equivalent ratings, compared to two hold ratings and zero buys, data compiled by Bloomberg show. An average price target of $46.50 implies shares will lose more than 70% of their value in the coming year.
This article was provided by Bloomberg News.