Why BofA Is Bearish On GameStop Stock: 'Turnarounds Are Tough'

Chris Katje

Fri, Feb 26, 2021, 11:46 AM2 min read

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GameStop shares have rallied over the last two days, likely due to strong interest from retail traders once again. One analyst is out with a bearish take on the gaming retailer.

The GameStop Analyst: BofA Securities analyst Curtis Nagle reiterated an Underperform rating on GameStop Corp (NYSE: GME) with a $10 price target.

The GameStop Takeaways: GameStop is seeing strong interest from retail traders once again, Nagle said in a Friday time.

The difference this time is that the trades are not being made for the same reasons, the analyst said.

“GME’s current short interest is close to 25% of shares outstanding compared to over 100% in January. To put that into another context, GME’s trading volume over the past two days is around 15x the current number of shares short,” he said.

Retail traders used a David vs. Goliath story of taking on hedge funds who were short the stock during January’s rally.

A turnaround for the struggling physical gaming retailer is an uphill battle, Nagle said.

GameStop has negative EBITDA and declining engagement, the analyst said — two factors that could slow a turnaround.

Nagle also questioned whether a push into online sales could help the company, as it may could at the cost of hurting the company’s high-margin pre-owned and collectible segments.

BofA's price target is based on 8x fiscal 2022 EV/EBITDA. The company’s five year average of the EV/EBITDA metric is 4x versus an average of 10x from the hardlines category.

GME Price Action: Shares of GameStop were down 2.42% at $106 at last check Friday.

Photo by Phillip Pessar via Wikimedia.

Latest Ratings for GME

Jan 2021	B of A Securities	Maintains		Underperform
Jan 2021	Telsey Advisory Group	Downgrades	Outperform	Underperform
Oct 2020	Jefferies	Downgrades	Buy	Hold

View More Analyst Ratings for GME
View the Latest Analyst Ratings

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Why BofA Is Bearish On GameStop Stock: 'Turnarounds Are Tough'

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