Game Stop (GME Free report) has recently been on Zacks.com’s Most Searched Stocks list. Therefore, you may want to consider some key factors that may affect the stock’s performance in the near future.

Over the past month, shares of the video game retailer have returned +71.7%, compared to a +3.2% change for the Zacks S&P 500 Composite. During that period, the Zacks Retail – Consumer Electronics industry, which includes GameStop, has gained 29.3%. Now the important question is: What could be the future direction of the stock?

While media reports or rumors about a significant change in a company’s business prospects usually cause its stock to trend and cause immediate price changes, there are always some underlying factors that ultimately drive buy and hold decisions. Let’s move on.

Revenue Estimates Revision

Here at Zacks, we prefer to estimate the change in a company’s future earnings estimates over anything else. This is because we believe that the present value of his future earnings determines the fair value of his stock.

We primarily look at how sell-side analysts covering the stock are revising their earnings estimates to reflect the impact of the latest business trends. And if earnings estimates for a company go up, the fair value of its stock goes up. A fair value higher than the current market price makes investors interested in buying the stock, causing its price to rise. This is why empirical research shows a strong correlation between earnings estimate revisions and trends in near-term stock price movements.

GameStop is expected to post a loss of $0.10 per share for the current quarter, representing a year-over-year change of +28.6%. Over the past 30 days, the Zacks Consensus Estimate has changed +16.7%.

The consensus earnings estimate of $0.01 for the current fiscal year indicates a year-over-year change of -83.3%. This estimate has remained unchanged over the past 30 days.

For the next fiscal year, the consensus earnings estimate of $0.09 represents a change of +800% from what GameStop is expected to report a year ago. Over the past month, estimates have changed by -10%.

With an impressive Externally audited track record, our proprietary stock rating tool — the Zacks Rank — is a more definitive indicator of a stock’s near-term price performance, as it effectively harnesses the power of revisions to earnings estimates. The size of the most recent change in consensus estimates, along with three others Factors related to income estimationhas resulted in a Zacks Rank #4 (Sell) for GameStop.

The chart below shows the evolution of the company’s forward 12-month consensus EPS estimate:

12 months EPS

Increase in expected income

While a company’s revenue growth is the best indicator of its financial health, if it can’t grow its revenue, nothing much matters. It is almost impossible for a company to grow its revenue without growing its revenue over a long period of time. Therefore, it is very important to know the potential revenue growth of the company.

In GameStop’s case, the consensus sales estimate of $900 million for the current quarter indicates a year-over-year change of -27.3%. Estimates of $4.5 billion and $4.15 billion for the current and next fiscal years indicate changes of -14.7% and -7.8%, respectively.

Last reported results and surprise history

GameStop reported revenue of $1.79 billion in the last reported quarter, representing a year-over-year change of -19.4%. EPS of $0.22 for the same period compares to $0.16 a year ago.

The reported earnings represented a -10.32% surprise, compared to the Zacks Consensus Estimate of $2 billion. The EPS surprise was -12%.

Over the past four quarters, GameStop beat consensus EPS estimates three times. The company topped consensus earnings estimates just once during the period.

Value

No investment decision can be effective without considering the stock’s valuation. Whether the current stock price accurately reflects the intrinsic value of the underlying business and the company’s growth prospects is an essential determinant of its future price performance.

Comparing the current value of a company’s price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF) ratios to its historical values ​​helps determine whether Its stock is undervalued, overvalued or undervalued, while comparing the company with its peers on these parameters gives a good idea of ​​how reasonably priced its stock is.

The Zacks Value Style Score (part of the Zacks Style Scores system), which pays close attention to both traditional and non-traditional valuation metrics for stocks graded A through F (an An is better than a B; a is better than a BC; and so on). ), is quite helpful in identifying whether a stock is overvalued, correctly valued, or temporarily undervalued.

GameStop is rated C on this front, indicating that it is trading on par with its peers. Click here To see the values ​​of some of the valuation metrics that have driven this grade.

The bottom line

The facts discussed here and many other information on Zacks.com can help determine whether or not the market’s buzz about GameStop is worth paying attention to. However, its Zacks Rank #4 suggests it may underperform the broader market in the near term.


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