By Ben Levisohn

GameStop may be a melting ice cube, but as long as Roaring Kitty is around, its stock will remain a fascination of traders and investors.

And Roaring Kitty is still around. At 8.m. on Christmas Day, the X account of Roaring Kitty, aka Keith Gill, tweeted out a photo of a present without comment. But to all his followers, it was a cue to look at GameStop stock again. Shares have gained 5% to $32.70 in premarket trading at 9:19 a.m., which would be the highest level since June 6.

GameStop stock has climbed 78% in 2024, and the gains have little to do with its business. Sales have declined year-over-year for five quarters and are expected to fall for a sixth when it reports its January quarter next year -- analysts expect revenue to drop to $1.48 billion, down from $1.79 billion -- while earnings per share could decline more than 60%.

Earnings and sales have missed the point since the stock launched the meme-stock craze during the pandemic, and Gill was a big part of that rise. Barron's was skeptical at the time, and if it had been just about fundamentals we would have been correct. Not many analysts cover the stock these days, largely because the actual business doesn't matter much right now. Wedbush analyst Michael Pachter is one just three analysts that cover GameStop shares, according to FactSet, and he continues to rate the stock an Underperform with a $10 price target. His target isn't a result of a hater hating -- he wrestles with where the valuation should be based on the business itself.

GameStop, for instance, has $10 a share in cash, which is generating 4% of income a year. Pachter, however, doesn't see a strategy to use that cash to build a new business to replace its retail business, which has been hit hard by digital downloads. Attempts to launch an NFT business didn't really pan out, and it's unclear what exactly its new plans are for entering trading cards, Pachter said in a note published on Dec. 11. "GME shares trade at a level that ignores the company's many challenges ahead," he concludes.

But meme trades have nothing to do with fundamentals -- and GameStop doesn't seem to be done just yet.

Write to Ben Levisohn at ben.levisohn@barrons.com

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December 26, 2024 09:21 ET (14:21 GMT)

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