Recently, retail traders propelled GameStop Corp. (GME), the specialty retailer, shares up by nearly 20%, reaching a two-month high during regular trading. This surge continued in anticipation of the company's upcoming quarterly results, highlighting a renewed appetite for risk in the market.

However, the scenario has changed, with investors now pivoting away from buying GME call options to actively selling them. This shift comes as meme stock enthusiasts reconsider their aggressive bullish strategies in response to the stock's pullback from its recent peak.

That being said, Wall Street expects the company to report a loss per share of $0.08 for the fiscal third quarter. Its revenue for the same period is expected to come in at $1.18 billion, a marginal year-over-year decline. Shares of GME have plummeted 42.5% over the past year, closing the last trading session at $15.30.

Here are the financial aspects of GME that could influence its performance in the near term:

Weak Financials

For the fiscal second quarter that ended July 29, 2023, GME’s adjusted operating loss stood at $20.70 million. Also, the company registered an adjusted net loss and adjusted loss per share of $9 million and $0.03, respectively. In addition, the company’s free cash flow decreased 3.8% year-over-year to $119.20 million.

Moreover, the company’s cash outflow from operating activities increased 5.5% from the year-ago value to $109.10 million. Furthermore, its cash outflow from investing activities grew 159.7% from the prior year’s quarter to $52.20 million.

Unfavorable Analyst Outlook

For the fiscal year ending January 2024, the company’s revenue is expected to decline 2.5% year-over-year to $5.78 billion. In addition, GME is expected to report a loss per share of $0.02 for the ongoing year.

Similarly, the company’s revenue is expected to decline 3.2% year-over-year to $5.59 billion for the fiscal year ending January 2025. Likewise, the company is projected to report a loss per share of $0.01 for the same period.

Mixed Historical Growth

Over the past three years, GME’s revenue and total assets increased at 1.3% and 5.7% CAGRs, respectively. However, its levered free cash flow declined at a CAGR of 2.9% during the same period.

Stretched Valuation

In terms of trailing-12-month Price/Book, GME is trading at 3.68x, 78.6% higher than the industry average of 2.06x. Moreover, its trailing-12-month Price/Cash Flow of 15.36x is 86.4% higher than the 8.24x industry average.

Mixed Profitability

GME’s trailing-12-month levered FCF margin of 6.57% is 27.4% higher than the industry average of 5.15%. However, the stock's trailing-12-month gross profit margin of 23.82% is 33% higher than the 35.56% industry average. Furthermore, its trailing-12-month CAPEX/Sales of 0.75% compares to the industry average of 3.13%.

POWR Ratings Show Bleak Prospects

GME’s bleak prospects are apparent in its POWR Ratings. The stock has an overall rating of D, translating to Sell in our proprietary rating system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GME has an F grade for Stability, justified by its 24-month beta of 1.75. Moreover, the stock has a D grade for Value, consistent with its stretched valuation.

GME is ranked #38 in the 44-stock Specialty Retailers industry. Click here to access GME’s Growth, Momentum, Quality and Sentiment ratings.

Bottom Line

GME has recently seen increases powered by retail. However, investor sentiment is changing from bullish to bearish due to a retreat from recent highs. Furthermore, given the company's poor financial performance, increased valuation, and mixed profitability, it could be wise to steer clear of GME at present.

How Does GameStop Corp. (GME) Stack Up Against Its Peers?

While GME has an overall grade of D, equating to a Sell rating, you may also check out these other stocks within the Specialty Retailers industry: Aeon Co., Ltd. (AONNY), Betterware de México, S.A.P.I. de C.V. (BWMX) and Live Ventures Incorporated (LIVE). For exploring more Specialty Retailers stocks, click here.

What To Do Next?

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GME shares were trading at $16.91 per share on Monday afternoon, up $1.61 (+10.52%). Year-to-date, GME has declined -8.40%, versus a 20.64% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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