Wedbush analysts reacted with bemusement at Gamestop Corp’s apparent decision to metamorphose the company into a mutual fund of sorts.
In the video game retailer’s latest interim earnings call, the board announced plans to delegate authority over GameStop’s investment portfolio to chief executive Ryan Cohen.
Cohen has been given the authority to invest in equities and other investments, per GameStop’s 10-Q filing.
The policy states: “Our portfolio of securities may be concentrated in one or a few holdings, which may result in a single holding significantly impacting the value of our investment portfolio.
“Accordingly, a significant decline in the market value of one or more of such holdings may not be offset by hypothetically better performance of other holdings.”
This effectively gives Cohen the keys to his own investment fund, but not everyone is impressed.
“Investors have a myriad of investment vehicles available to them and therefore do not need GameStop to act as a mutual fund,” stated Michael Pachter at Wedbush. “If GameStop truly believes in the value of its shares, it should use its excess cash to buy back stock.”
Pachter called the company’s decision to invest in equities other than its own “alarming”, as it implies that GameStop management “believes it will achieve better returns by buying equities aside from its own”.
Cohen’s broad brush remit to invest in companies with GameStop capital comes just three months after his election as chief executive of the group.
He is known as an activist investor, and at one point was among the largest individual shareholders in Apple.
Whatever he decides to invest GameStop capital in, his strategy will be closely watched and marked to market.
“The Company is required to recognise losses in a particular security for financial statement purposes even though the company has not actually sold the security,” read the 10-Q.
As for GameStop’s share price itself, Wedbush has an underperform rating with a 12-month price target of $6 against the $14.84 publication price.
Will GameStop replicate AMC’s failures?
By the way, GameStop is not the only meme stock beneficiary to get into equity investing
AMC Theater’s acquisition of a 22% stake in silver and gold mining company Hycroft Mining Holding Corporation was called “embarrassingly stupid” and a “complete misuse of shareholder capital”.
AMC spend $28 million on the 2022 acquisition, despite being on the brink of bankruptcy just one year earlier.
“Our strategic investment being announced today is the result of our having identified a company in an unrelated industry that appears to be just like AMC of a year ago,” AMC said at the time.
“It, too, has rock-solid assets, but for a variety of reasons, it has been facing a severe and immediate liquidity issue. Its share price has been knocked low as a result. We are confident that our involvement can greatly help it to surmount its challenges — to its benefit, and to ours.”
In the past 12 months, Hycroft Mining Holding Corporation has lost 61% of its market value.
Your move, Cohen.