One prominent analyst recently declared that video game retailer GameStop (NYSE:GME) stock is “doomed.”
That assessment might sound harsh, but GME stock traders need to consider GameStop’s problems. From frequent executive-level shakeups to dwindling sales, there are multiple reasons for investors to avoid GameStop in 2023.
I’ll admit that I recently offered some “to-the-moon” motivation for GameStop’s loyal shareholders. However, some new developments are prompting me to think twice about GameStop now. So, let’s delve into the details and decide whether GameStop really is “doomed.”
| GME | GameStop | $24.07 |
Quarterly Results Shouldn’t Impress GME Stock Traders
First and foremost, I’ll reveal the controversial “doomed” quote so you can judge its merits for yourself. Wedbush analysts, led by Michael Pachter, are “convinced that GameStop is doomed, with declining physical software sales and a shift of sales to subscription services and digital downloads sealing its fate.”
Adding to that, Wedbush Securities Media and Gaming Analyst Nick McKay observed that the “collectibles side … just wasn’t there in the first quarter” for GameStop. That’s indisputable, as GameStop’s first-quarter 2023 Collectibles segment net sales declined to $173 million from $220.9 million in the year-earlier quarter.
Furthermore, Pachter was right about GameStop’s Software segment net sales, which fell to $338.3 in Q1 2023 from $483.7 in 2022’s first quarter.
Alarmingly, GameStop’s total net sales declined year over year and so did the company’s gross profit. So, all things considered, Pachter’s bearish argument seems to hold weight.
High Executive Turnover Spells Trouble
Five CEO replacements in just five years – that’s definitely not something to brag about. Clearly, GME stock traders understood that a high executive turnover rate isn’t a good thing, as the share price plummeted when GameStop announced it is ousting Matt Furlong and putting Ryan Cohen in the CEO position.
Jefferies analyst Andrew Uerkwitz provided some tough but honest commentary on this topic. “”One consistency remains, changes at the top. Over the last 5 years, GameStop has had 5 CEOs and 3 CFOs,” Uerkwitz stated.
However, this wasn’t the only reason that GameStop stock has its biggest single-day drop in two years. Surely, it would have been nice if the company had provided a timely explanation for GameStop’s latest CEO change.
That didn’t happen, though, since GameStop’s management decided to cancel the company’s quarterly earnings conference call.
That’s a shocker, and it won’t help GameStop repair its reputation with the investing community. I can see why some experts on Wall Street might be baffled and frustrated with GameStop now.
As Uerkwitz succinctly put it, “It’s hard to have an opinion with no earnings call, little-to-no investor communication, and lack of consistent strategic vision.”
GME Stock Has ‘Doom’ Written All Over It
Given these unsettling developments, I’m flipping from a hopeful stance on GameStop to a concerned outlook. GameStop stock could be doomed in 2023, or at least in serious trouble.
At this point, it would require some positive news for me to turn bullish on GameStop. At the very least, GameStop’s management needs to step up its communication with the company’s loyal investors. This would be a great first step, but until that happens, I simply can’t recommend GME stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
