Retail analyst: $10 price target on GameStop is overly generous

Written by: Jayson Derrick
February 26, 2021
  • GameStop fired its CFO and the stock soared as high as $200 per share.
  • One retail analyst says it is never a good sign when a CFO is fired.
  • He says his prior $10 price target on GameStop's stock is overly generous.

Anthony Chokumba is a retail analyst at Loop Capital Markets and explained Thursday on CNBC why his prior $10 price target on GameStop Corp. (NYSE: GME) is overly generous.

Analyst: GameStop ranks ‘dumbest’ and second ‘dumbest’ event

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Chokumba recently suspended coverage of GameStop’s stock amid extreme volatility. This is a standard practice among Wall Street analysts when a stock under coverage is so far removed from reality. In GameStop’s case, the stock soared from under $3 in early 2020 to as high as $500 in early 2021.

Here is a quick summary of what happened to GameStop’s stock in January.

After GameStop’s stock hit $500 in early 2021, shares quickly drifted back to the $40 level. On Wednesday, GameStop’s stock went on to experience “the biggest dead cat bounce in the history of Wall Street” as it quickly soared to $200 per share.

In fact, one of the “dumbest” stories Chukumba said he has ever seen was GameStop’s initial surge. The “second” is GameStop’s trading action this week.

Newsflash: CFO was just fired

GameStop parted ways with its Chief Financial Officer Jim Bell just prior to GameStop’s surge on Wednesday. Sources close to the matter told media outlets that Bell was pushed out by the board because he doesn’t share a similar vision on the company’s shift to a digital business.

As a general rule, it is never a “positive sign” when a CFO is fired right after the end of a reporting quarter, the analyst wrote. Quite the contrary, it is often a “very, very negative sign to the point where a $10 price target on GameStop’s stock would have been viewed as “generous.”

“If I was still covering the stock and the CFO, like I said, was fired just a couple of weeks before they were supposed to report earnings, I’d probably lower my price target.”

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GameStop short-term versus long-term

In the short-term, the stock market is a “voting machine” and over the long-term, it is a “weighing machine,” the analyst said. This means that at some point beyond the short-term, GameStop’s stock will need to reflect its fundamentals.

“And the fundamentals of this company are terrible,” the analyst said.

Once GameStop’s stock more accurately represents reality, it will “end badly” for many investors. This is especially true for those that bought the stock late compared to the early crowd, like Keith Gill, aka “Roaring Kitty.”

“This will end badly, it’s not a question of if it will, it is just a question of when,” the analyst said.