GameStop Stock Price Falls After Activist Letter

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GameStop Corp. (GME) shares fell about 10% during Thursday’s session after two activist investors delivered a letter to the board demanding representation on the board. Hestia Capital Partners and Permit Capital Enterprise note that shareholders have lost 85% of the value of their investment over the past five years and directors have no exposure.

The activist investors believe that the company’s intrinsic value – which they believe could equate to a share price in the high teens – will only be realized if the company is properly governed. The departure of four long-tenured directors and the appointment of three new board members is a step in the right direction, but no independent directors own a significant stake.

In recent quarters, analysts have expressed concern that GameStop has been taking increasingly desperate measures to boost sales as it struggles with major revenue losses caused by a consumer shift to digital sales. Polygon’s Colin Campbell cited reports from current and former managers regarding missed targets and increasingly desperate actions.

TrendSpider

Traders should watch for a breakout from trendline resistance toward the 50- or 200-day moving average at $4.37 and $5.00, respectively. If the stock breaks down, traders could see a move toward reaction lows of around $3.18 per share. It’s worth noting that the near-term price action could be driven more by the overall market’s volatility than fundamentals.

The author holds no position in the stock(s) mentioned except through passively managed index funds.

Source: Investopedia

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