Last week, short-seller Citron Research said it sees several reasons GameStop will trade "back to $20 fast"
Shares of GameStop (GME) are soaring on Monday despite Telsey Advisory analyst Joseph Feldman's double downgrade to Underperform, a sell-equivalent rating. The analyst sees a "disconnect" between GameStop's fundamentals and its valuation following the recent surge in the shares, and believes the stock's rally is likely being driven by a short squeeze and speculation by retail investors on forecasts for the new gaming cycle and the involvement of activist RC Ventures.
FUNDAMENTALS, VALUATION DISCONNECT: Telsey Advisory analyst Joseph Feldman double downgraded GameStop to Underperform from Outperform with a $33 price target. The analyst sees a "disconnect" between GameStop's fundamentals and its valuation following the recent surge in the shares. Further, Feldman says the 10-fold advance in the stock since his September upgrade "far exceeds" his "high fundamental expectations." GameStop's enterprise value to EBITDA valuation multiple is now at about 33 times, significantly ahead of many leading retailers and the company's 10-year average, Feldman added.
The stock's surge is likely being driven by a short squeeze and speculation by retail investors on forecasts for the new gaming cycle, as well as the involvement of activist RC Ventures, he contended. The analyst believes the current share price and valuation levels "are not sustainable," and expects the shares to return to a more normal and fair valuation driven by the fundamentals. Nonetheless, and despite industry challenges, including the ongoing shift to digital and competition from store and online retailers, Feldman thinks GameStop should continue to benefit from the new gaming cycle, with current demand far outpacing supply for new generation Microsoft (MSFT) and Sony (SNE) consoles; its recent agreement with RC Ventures and the board refresh; and its healthy balance sheet, with a net cash position of $101M at the end of the third quarter of 2020.
'BACK TO $20 FAST': On Tuesday, Citron Research said via Twitter that, "[Wednesday] am at 11:30 EST Citron will livestream the 5 reasons GameStop $GME buyers at these levels are the suckers at this poker game. Stock back to $20 fast. We understand short interest better than you and will explain. Thank you to viewers for pos feedback on last live tweet."
In a YouTube video, Citron Research's Andrew Left added that GameStop buyers "at these levels" are "the suckers at this poker game," repeating a call for the stock to trade "back to $20 fast."
However, on Friday, the short-seller said he would no longer comment on the stock after an "angry mob" committed "multiple crimes." He explained that what "Citron has experienced in the past 48 hours is nothing short of shameful and a sad commentary on the state of the investment community" after an "angry mob who owns this stock has spent the past 48 hours committing multiple crimes" that Left said he will be "turning over to the FBI, SEC and other governmental agencies."
PRICE ACTION: In late morning trading, shares of GameStop have jumped over $43.56, or 67%, to $108.57 and been halted several times due to volatility.