GameStop's Rally Window Narrows, Holds $1B Cash

GameStop misses opportunity to sell stock during meme rally, contrasting AMC's capitalization on surge.

By Barry Stearns

5/15, 15:13 EDT
AMC Entertainment Holdings, Inc.

Key Takeaway

  • GameStop missed capitalizing on its stock surge, unlike AMC which sold shares during the rally, amid regulatory and earnings report timing constraints.
  • With nearly zero debt and almost $1 billion in cash, GameStop's financial position remains strong despite not selling new stock.
  • The recent 226% surge in GameStop's share price rekindled interest in meme stocks, though it remains down nearly 70% from its 2021 peak.

Speculative Surge

GameStop Corp. experienced a significant share price increase, more than tripling over a two-week period, yet the company has not capitalized on this surge by selling stock. This decision contrasts with AMC Entertainment Holdings Inc., another meme stock, which took advantage of a similar rally to sell shares. GameStop's lack of action could be attributed to the absence of an at-the-market (ATM) filing, which would allow for the sale of new shares without additional paperwork. Additionally, the company is on the cusp of releasing quarterly earnings, potentially complicating any immediate stock sale due to regulatory requirements for disclosing material information. Jay Ritter, a finance professor at the University of Florida, noted that for an ATM offering, companies need to disclose any material information, which would include earnings.

Financial Strategies and Challenges

GameStop's financial position is notably strong, with nearly zero debt and almost $1 billion in cash, a factor that has been highlighted by its supporters. In contrast, AMC is in negotiations with creditors to extend obligations and has engaged in a debt-for-equity swap to manage its approximately $4.5 billion debt. The differing strategies between GameStop and AMC reflect their unique financial situations and market pressures. GameStop's CEO Ryan Cohen, also its largest shareholder, faces the challenge of steering the company through a difficult turnaround as the gaming industry moves further towards digital downloads, moving away from the brick-and-mortar model that GameStop is known for.

Market Dynamics

Despite a 226% surge in GameStop's share price at the start of May, the stock remains down nearly 70% from its 2021 peak. This recent rally, however, has reignited interest in speculative trading, particularly in meme stocks. AMC capitalized on the rally by selling $250 million worth of shares and announced a debt-for-equity swap to address its debt. The timing for GameStop to potentially sell shares remains uncertain, with the company historically releasing first-quarter results in June. The fluctuating stock prices, with GameStop and AMC experiencing significant drops after initial gains, underscore the volatile nature of meme stock rallies.

Street Views

  • Jay Ritter, University of Florida (Neutral on GameStop's financial strategy):

    "For companies to set up and sell shares in an ATM offering they 'would need to disclose any material information,' which would include earnings in some capacity."

  • Jeremy McLean, Hedgeye (Neutral on GameStop):

    "The bullish case for GameStop investors is currently 'all on the momo meme trade, which perhaps still has legs,' but warned that a 'near best case scenario is already priced in in terms of fundamentals.'"

  • Michael Pachter, Wedbush (Neutral on GameStop's potential stock sale):

    "If they issue shares, they think the price is pretty compelling."