GameStop (GME.US) shares are down nearly 15% today, erasing yesterday’s rebound, which was largely driven by news that the company plans to include Bitcoin in its reserves. GameStop intends to shut down a significant portion of its physical video game retail locations and focus on a Bitcoin-centered strategy, similar to MicroStrategy. Shareholders have every right to be concerned about this scenario, as GameStop’s stock price may become heavily correlated with Bitcoin going forward, while the company’s core business continues to weaken. Wedbush Securities analysts have maintained their price target for GameStop shares at $11.50 despite yesterday’s announcement, citing business weakness and overvaluation.
- GameStop’s current cash position is approximately $4.8 billion, and the planned bond offering would raise that amount to $6.1 billion. Meanwhile, the company’s market valuation stands at $12.7 billion—more than double its projected cash reserves post-issuance. For comparison, MicroStrategy is valued at less than twice the worth of its Bitcoin holdings. GameStop trades at a price-to-earnings (P/E) ratio of 86 and an EV/EBITDA multiple close to 387.
- According to Wedbush, GameStop’s decision to convert cash into Bitcoin does not justify the current premium in its share price. The company’s entry into the NFT space has also failed to yield success so far. Wedbush questions the rationale for investing in GameStop at more than twice its cash value solely due to the potential conversion of some cash into Bitcoin. It is also worth noting that investors have alternative ways to gain Bitcoin exposure through ETPs such as ETFs, ETNs, and ETCs, as well as shares of other companies that center their strategies around Bitcoin.
GameStop (GME.US, D1 interval)
Today, GameStop shares dropped below the 200-day EMA, signaling a potential return to the downtrend.
Source: xStation5
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