GameStop stock sinks nearly 9% on mixed earnings results


MarketWatch 08 September, 2021 - 03:18pm 30 views

What time is GME earnings report?

Financial News 25, 2021 (GLOBE NEWSWIRE) -- GameStop Corp. (NYSE: GME) , today announced that it will report second quarter fiscal 2021 earnings results after the market closes on Wednesday, September 8, 2021. The Company will host an investor conference call at 5:00 pm ET on the same day... gamestop.comInvestor Relations | Gamestop Corp.

GameStop Fans Face Off Against Earnings Day History of Defeat

Yahoo Finance 08 September, 2021 - 09:00pm

Shares of the video-game retailer were up 1.2% in New York on Wednesday but they have tumbled 18% on average the day after earnings since June 2019 -- they gained on such reports only twice since the start of 2018. Add on that the options market implies the stock will swing 15% by the end of Thursday’s session and it suggests it could be a choppy few days ahead for the company that helped set off the meme-stock trend.

The optimism of such retail investors -- which fueled a meteoric rise in the stock price and has baffled professional analysts -- has held steady ahead of potential updates on activist investor and Chairman Ryan Cohen’s long-awaited turnaround strategy. Cohen’s goal is to turn the struggling retailer into an e-commerce competitor to Inc., though not everyone is sold on the Chewy Inc. co-founder’s vision.

“The company remains enormously structurally challenged as the entire market moves rapidly to streaming/downloads,” said Vital Knowledge’s Adam Crisafulli. “The company’s stock price is completely divorced from fundamentals and has been for some time.”

That disconnect has been driven by what one analyst called “Reddit raiders” who rallied together to send the company’s shares soaring and delivered huge losses to short sellers who bet against it. The video-game retailer’s share price surged to an intraday peak of as much as $483 in January, up from less than $19 at the end of 2020, before gyrating over the past seven months. It closed at $199 on Tuesday.

Out-of-the-money call options expiring Friday, a favorite of retail investors, were the most actively traded derivative for the company on Tuesday, with some wagering on a potential surge in the share price this week. That stands out against the recent trend of investors hedging for GameStop’s shares to fall, with put option open interest outweighing call options by a ratio of two-to-one.

While its current stock price gives GameStop a $15.3 billion market capitalization, Wall Street analysts say it’s unwarranted given the company’s outlook. The stock has one analyst who rates it at a hold while two advise clients to sell the stock. The average 12-month price target of $88.33 implies shares should lose another 56% over the coming year.

Despite earnings that likely will mean little given GameStop is still up nearly 1,000% this year, it’s worth noting that Wall Street is looking for revenue of $1.12 billion. If the retailer can top estimates it would mark just the second time it has beat sales expectations since the start of 2019 and show that it capitalized on the launches of new game consoles from Sony Corp. and Microsoft Corp.

“GameStop is well-positioned to be a primary beneficiary of the new console launches,” wrote Wedbush analyst Michael Pachter, who rates the stock an underperform. While he anticipates second-quarter sales will top expectations, he doesn’t expect details on the “long-awaited transformation strategy.”

The stock’s rally this year dealt short sellers some $6.41 billion in losses through Friday’s close, according to S3 Partners. Short interest for the retailer has inched lower to near 11%, S3 Partners’ data show, a fraction of the more than 140% level seen back in January before retail investors stampeded in.

Cohen, who became GameStop’s chairman in June, has shaken up the company’s management since taking a stake in the retailer last year. He appointed a pair of Amazon executives to take the helm, and Wednesday’s earnings call will be the first one led by now Chief Executive Officer Matt Furlong.

GameStop is among the market’s most closely watched meme stocks even as Wall Street pros have taken the reins from amateurs to drive recent swings. The stock remains one of the year’s best performers in a Bloomberg basket of companies that Robinhood Markets restricted trading of during the meme-stock craze early this year. That equally weighted index is up more than 75% in 2021.

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GameStop Corp. is set to report their latest quarterly numbers after the close Wednesday. I have no special knowledge of what they will report and no insight into any message board guesses or strategy.

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GameStop (GME) Option Traders Betting on Game Over

Investopedia 08 September, 2021 - 09:00pm

The open interest for GME shows an increasing number of put options, and option premiums are at an unusually elevated level. Trading volumes indicate that traders have been buying puts and selling calls in anticipation of a lackluster earnings announcement. If these bets were to unwind, it could place unexpected upward pressure on the share price of GME.

Accurately predicting the direction a stock will move after earnings is difficult. However, a comparison between the stock's price action and option activity shows that, if GameStop delivers a positive report, the company's share price could rise, moving further above its 20-day moving average after the announcement. This could happen because options are priced for a downward move, but unforeseen good news could catch traders by surprise and create a rapid rise in share price.

A comparison between the details of both stock price and option behavior can grant chart watchers valuable insight. However, it is necessary to understand the context in which this price behavior took place. The chart below depicts the price action for the GME share price as of Sept. 7. This created the setup leading into the earnings report.

Over the past month, the trend for GME stock has the share price falling below and rising well above its 20-day moving average, closing in the top third of the volatility range. In this time period, it's notable that the lowest GME share price was roughly $151 in early August, whereas the highest share price was $225 in late August. The price closed in the upper region depicted by the technical studies in this chart. 

The studies are formed by 20-day Keltner Channel indicators. These depict price levels that represent a multiple of the Average True Range (ATR) for the stock. This array helps to highlight the way the price has risen above the 20-day moving average in the week before earnings. This price move from GME shares implies that investors' confidence is growing as the earnings report approaches.

The Average True Range (ATR) has become a standard tool for depicting historical volatility over time. The typical average length of time used in its calculation is 10 to 20 time periods, which includes two to four weeks of trading on a daily chart.

In this context where the price trend for GME has closed above its 20-day moving average, chart watchers can recognize that traders and investors are expressing growing optimism going into earnings. It's notable that, in the week before earnings, GME's share price has slightly declined. That makes it important for chart watchers to determine whether the move is reflecting investors' expectations for favorable earnings or not.

Option trading details can provide chart watchers with additional context to help them form an opinion about investor expectations. Recently, option traders are favoring calls over puts by a narrow margin. On Tuesday, there were over 53,000 calls traded opposed to nearly 30,000 puts. Normally, this volume indicates that traders are feeling bullish toward the earnings report.

The Keltner Channel indicator displays a set of semi-parallel lines based on a 20-day simple moving average and an upper and lower line. Because the upper lines are drawn by adding a multiple of ATR to the average and the lower lines are drawn by subtracting a multiple of ATR from the average price, then this channel indicator makes for an excellent visualization tool when charting historical volatility.

Option traders recognize that GME shares are in an above average range and have priced their options as a bet that the stock will close within one of the two boxes depicted in the chart between today and Sept. 10, the Friday after the earnings report is released. The green-framed box represents the pricing that call option sellers are offering. It implies a 39% probability that GME shares will close inside this range by the end of the week if prices go higher. The red box represents the pricing for put options with a 30% chance if prices go lower on the announcement. 

It is necessary to note that the open interest featured over 257,000 calls to over 538,000 puts, demonstrating the bias that option traders had, as traders favored puts over calls. This reflects a bearish sentiment around GME earnings. However, because the call box and put box are relatively equal in size, it tells us that the high percentage of put options has only mildly skewed expectations lower. A far more complacent outlook is implied.

The purple lines on the chart are generated by a 10-day Keltner Channel study set at 4 times the ATR. This measure tends to create highly correlated regions of strong support and resistance in the price action. These regions show up when the channel lines make a noticeable turn within the previous three months.

The levels that the turns mark are annotated in the chart below. What is notable in this chart is that the call and put pricing are in such a close range with space to run either way, but with more room to the downside. This suggests that option buyers don't have a strong conviction about how the company will report, even though recent put volumes outweigh call volume. Although investors and option traders do not expect it, a surprising report would push prices dramatically higher or lower.

These support and resistance levels show a large range of support and resistance for prices. As a result, it is possible that any news, surprisingly bad or good, will catch investors by surprise and could generate an unusually large move. After the previous earnings announcement, GME shares fell 27% the day after earnings and continued to fall the following week. Investors may be expecting a similar negative move in the price after this announcement. With plenty of room in the volatility range, share prices could rise or fall more than expected.

GameStop is hardly a bellwether stock, but since the initial madness that drew attention to the company, the stock has been volatile and prone to violent swings in either direction. By market cap, GameStop's earnings shouldn't have a direct effect on indexes. However, with a dedicated following, GME's earnings should have an impact on stocks in the specialty retail sector.

A positive report could lift other stocks in the sector such as Best Buy Co., Inc. (BBY) or Ulta Beauty, Inc. (ULTA). However, it's more likely to have an effect on other popular online stocks such as AMC Entertainment Holdings, Inc. (AMC). It could also affect exchange traded funds such as iShares' Core S&P Mid-Cap ETF (IJH), First Trust’s Nasdaq Retail ETF (FTXD), or VanEck Vectors' Social Sentiment ETF (BUZZ).

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