GameStop Corp (NYSE:GME) posted a rare operating profit for the fourth quarter despite a sharp decline in revenue, prompting Wedbush analysts to boost their price target on the video game retailer while repeating their ‘Underperform’ rating.
“We are raising our price target from $10 to $11.50 to reflect the company’s cash balance of approximately $10.50 per share plus $1 in going concern value,” the analysts wrote.
Shares of GameStop surged 15.3% to about $29 late morning on Wednesday.
Q4 results ‘not sustainable’
Notably, GameStop has managed to trim its operating losses to almost breakeven, with a net operating loss of less than $10 million in each of the last two fiscal years.
The analysts wrote that while GameStop’s Q4 results were arguably not sustainable, they did not expect the company to even approach operating breakeven ever again.
“We were wrong, and it is clear that the company’s operations have some value, albeit not as great as its share price suggests,” they wrote.
“We will revisit our price target and investment thesis should GameStop again prove us wrong and return to operating profitability.”
Regarding GameStop’s fourth quarter results, the analysts highlighted the continued dramatic fall in revenue as it closes stores and more games are sold digitally.
“The company is clearly focusing on its most efficient stores, closing around 100 stores in 2024 and announcing its withdrawal from Canada and France,” Wedbush wrote.
Collectables ramp up a positive development
Profitability was a bright spot, with adjusted net income coming in at $136 million compared to Wedbush’s estimate of $37.3 million.
GameStop appears to have started ramping up its trading card business with positive results, analysts added.
The “collectibles” category, which includes the trading card business, increased 15% year-over-year in the fourth quarter, despite a 28% drop in overall sales.
“We believe that a substantial portion of GameStop’s trading card business is conducted online, and expect to see the collectibles business stabilize or even grow going forward, even as GameStop continues to shrink its retail footprint,” analysts wrote.
“We are impressed by management’s discipline and believe that it is appropriate to consider going concern value when we calculate our price target.”