By Angela Palumbo

GameStop's earnings, due after the close of trading on Tuesday, have the potential to send the so-called meme stock even higher as the year comes to a close.

Shares of the videogame retailer have risen 59% this year and are on pace for their best year since 2021, when they surged 688%, according to Dow Jones Market Data. The S&P 500 is up 27% this year.

This year's performance isn't due to out-of-this world financial results. In fact, shares fell 12% on Sept. 11 after the company reported disappointing second-quarter revenue.

What is behind the jump is news in mid May that meme-stock celebrity Keith Gill, known online as Roaring Kitty, had returned to social media, reinvigorating hope for a trading frenzy like the one in 2021 when retailer traders, chatting in online forums, bought up the shares, squeezing short sellers and sending the stock through the roof. GameStop stock jumped 74% on May 13 and 60% on May 14 after Gill's return raised hope for another short squeeze.

The stock has now fallen some 43% from its 52-week closing high of $48.75, hit on May 14, as traders and investors balance the possibility of a meme-stock surge against GameStop's challenges as a business.

The few analysts surveyed by FactSet that cover GameStop expect the company to report a third-quarter loss of 3 cents a share on revenue of $888 million.

Wedbush analyst Michael Pachter rates GameStop as Underperform with a $10 price target. He wrote in a research note on Dec. 6 that the company faces "insurmountable barriers" in returning to growth, including the continued preference of users for digital games over physical and "the company's nonspecific strategy to enter the trading card business with virtually no competitive advantage against established participants."

In October, GameStop announced it was becoming an authorized Professional Sports Authenticator dealer to provide authentication and grading services for trading cards.

If GameStop comes out with stronger-than-expected results, that could help give the stock a nudge. But it is possible that demand for videogame consoles and other GameStop offerings will turn out to have been weak as a result of inflation and high interest rates.

It's likely the stock will see a big move in either direction after earnings. GameStop is part of the S&P Mid Cap 400. On an average, the stocks in that index, excluding GameStop, have moved by 5.5% after announcing earnings in the past five cycles, in absolute terms.

Shares of GameStop were down 0.6% on Tuesday to $27.75.

Write to Angela Palumbo at angela.palumbo@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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December 10, 2024 12:50 ET (17:50 GMT)

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