GameStop Stock News and Forecast: GME set for risk-on rally

• GME stock pops after earnings and Fed Chair Powell comments.
• Risk assets look set to rally as Bitcoin climbs.
• GameStop earnings were mixed, but the market should lead GME higher.

Gamestop (GME) stock rallied sharply after earnings despite those results being mixed. Revenue missed slightly, but earnings per share was ahead of forecasts. Revenue came in at $1.14 billion, about $130 million behind estimates, but EPS was $-0.35, ahead of consensus at $-0.41.

GameStop stock news

GameStop also announced a partnership with crypto firm FTX to increase its visibility in digital assets. GME has increasingly targeted this space through NFTs and other associated initiatives. A few positives and negatives came out of the earnings. Overall, revenue has slowed, down 4%, but costs fell 14%, meaning the EPS number was ahead of forecasts. GME has no debt and a decent cash balance of $900 million. Pretty healthy. but inventories rose to nearly $750 million. Usually rising inventory is a sign of slowing sales growth, and we have witnessed similarly increased inventory levels from many retailers in the last quarter. 

Revenue is declining.

But so too are costs, meaning EPS was better than consensus. Good cost control will be essential in this environment. 

GameStop has a lot of cash and no debt, but it is burning through that cash pile as we can see below. This is not a good look. It buys the company time, but it needs to turn around.

Source: Refinitiv

Overall, this offers a very mixed picture. If GameStop can continue to rein in its cost base, there may be light at the end of the tunnel. It just needs to find a way to navigate the transition from old-fashioned brick-and-mortar retail to a mix of online and digital expansion. The pile of cash has bought it some time but if it does not arrest the falling revenue stream it will eventually burn through it. We may be in for a long slow decline otherwise.

The overall situation is mixed fundamentally and means I would hold off any long-term investment until I see further evidence of revenue stabilization along with a slowdown in cash burn and even more cost control. This might be a step in the right direction though.

Gamestop stock forecast

Technically, we look to be setting up for a risk-on rally in the short term. Bitcoin is moving higher, and risk assets are also higher with ARKK up. Yields are lower despite Fed Chair Powell saying the Fed is in this inflation fight for the long haul. Hawkish comments, indeed, but the market is shrugging it off. This may again come down to positioning as CTAs have been aggressive in selling equities this past fortnight, and equity sentiment again has probably moved to overly bearish. This looks like another short-term rally is setting up, but the overall environment still looks long-term bearish in my view. 

Technically, holding above $19.44 is solid and means $29 is the first target. GME was oversold on the Relative Strength Index (RSI), and we use an extremely oversold level of 25 rather than 30 to give stronger signals. Here it is playing out nicely so far. Breaking that and the 200-day moving average at $37 is next up. Holding above this week's low at $23.42 is our short-term pivot. If we break back below, then the short-term bullish rally is probably over and $19.44 becomes the key support.

GME stock daily