News Profit's Takes

GameStop Stock Drops (Not Much) After Retailer Announces Offer Of $1B In Shares

Shares in GameStop took a dive on April 5th after the company said it may sell up to $1 billion worth of additional shares of stock at an at-the-market equity offering program. Shares of the video game retailer had declined by more than 15% by 7:19 a.m. in New York.

In a statement, the company said Jefferies will manage the offering of up to 3.5 million shares of stock. The proceeds will be used to further accelerate GameStop’s corporate transformation. According to a filing, the company signed a deal back in December with Jefferies to sell as much as $100 million in stock.

“AMC and GameStop need money,” said Mad Money‘s Jim Cramer. “Raising capital is good for both companies and over the long haul, what’s good for the company should be good for the stock.”

In a separate statement on the same day, GameStop also released preliminary sales results for the first nine weeks of the first quarter of 2021. Total global sales jumped 18% in March after a 5.3% increase the previous month.

The Profit‘s Take:

This was obvious that GameStop would raise money to take advantage of their sky-high valuation. It’s also no surprise that Jefferies is managing the offering – this is the same firm that gave the company a completely crazy $175 price target which was clearly a play to get the banking business. The bottom line is that GameStop is trading at a valuation that is basically assuming a successful turnaround has already happened (note: it hasn’t yet). Any investors getting in now may very likely get burned.

(All information was provided by Hindustan Times and CNBC)

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