If you're wondering why the share price of GameStop (GME) hit a fresh 52-week low this week, it could be that investors know that the video game retailer will report its fiscal fourth-quarter results shortly after Thursday's close. If you've been a GameStop investor over the past few years, earnings season has proven to be hazardous to your wealth more often than not.
For 11 of the past 13 quarters, on the day that followed an earnings release, GameStop stock fell sharply.
The irony here is that the stock has actually soared nearly eightfold over the past three years. And despite touching a new 52-week low on Monday, the stock has more than quadrupled since the start of last year. Volatility is unavoidable for owners of the ultimate meme stock, but let's take a closer look at why GameStop has slumped whenever it has actual performance metrics to discuss.
Image source: Getty Images.
Reality is the ultimate end boss
It's natural to be nervous this week if you're a GameStop shareholder. Experienced gamers know all about spotting patterns, and the niche retailer definitely has a tendency to disappoint with its quarterly financials. Here's what those post-report trading days have looked like:
- Nov. 29, 2018: down 6.7%
- April 2, 2019: down 4.7%
- June 4, 2019: down 35.6%
- Sept. 10, 2019: down 9.8%
- Dec. 10, 2019: down 15.1%
- March 26, 2020: down 4.3%
- June 9, 2020: up 2.2%
- Sept. 9, 2020: down 15.2%
- Dec. 8, 2020: down 19.4%
- March 23, 2021: down 33.7%
- June 9, 2021: down 27.2%
- Sept. 8, 2021: up 0.2%
- Dec. 8, 2021: down 10.3%
That works out to an average daily decline of 13.8% immediately after each of the past 13 reports. Adding insult to injury, the two outlier days when the bears didn't prevail aren't very inspiring. The 2.2% rise on its fiscal Q1 2020 report and the 0.2% uptick on its fiscal Q2 2021 report were the stock's smallest moves in either direction in a session that followed a release over the past three years.
Expectations are low ahead of this week's moment of truth. For the holiday-fueled fiscal quarter, which ended Jan. 30, analysts on average see net sales climbing by a mere 4% year over year to $2.22 billion. They also see a profit of $0.84 a share, well below the $1.34 a share it delivered a year earlier. Unfortunately for the bulls, even the low bars that Wall Street pros have set have proven challenging for the company to meet lately. It has fallen short of expectations on the bottom line in three of the past four quarters.
We also can't forget that the stock is still carrying some unsettling negative momentum from its previous quarterly report. Net sales in its fiscal Q3 actually topped expectations, but investors were concerned about its stubbornly high cost of sales and rising inventory levels. GameStop's business model -- when the company was in its prime -- was based on high-margin sales of secondhand software titles, consoles, and accessories. The new stuff just doesn't allow for the same level of mark-ups that GameStop can score on customer trade-ins. Moreover, with game publishers (and customers) shifting more to digital delivery, and with consoles enjoying extended lifetimes as a result of that direct distribution, that old model has become less and less sustainable.
GameStop continues to be a relevant brand in the world of video games, but it just hasn't been able to convincingly sell the future to investors based on its cold, hard numbers.
