Why GameStop Stock fell 29% last month
What happened
Video game retailer stocks GameStop (NYSE: GME) decreased by 29.1% in May 2020, according to data from S&P Global Market Intelligence. The stock soared 64% in April, preparing investors for a rude awakening the following month.
So what
The pain started on May 2 when GameStop released a first quarter activity update. Same-store sales fell 33% and curbside pickup orders were 10% lower than management expectations for the coronavirus. Stock prices fell 9% that day and continued to decline, representing a 32% drop in two weeks.
May 22, activist investment firms Hestia Capital Partners and Permit Capital Enterprise Fund said GameStop wasted $ 2.5 billion in shareholder value over two years while saddling the balance sheet with unmanageable debt. The company retaliated with a letter to shareholders, describing the complaints from activist investors as “based on baseless allegations and a material misrepresentation of facts.” GameStop’s stock fell a further 9% between the investor complaint and the end of the month.
Image source: Getty Images.
Now what
GameStop will release its full Q1 report on Tuesday, June 9. This event will provide management with a public stage from which to refute the complaints of dissenting shareholders point by point. If GameStop executives choose not to take this bet, I’m sure we’ll see analysts scrambling for answers when the results are called.
The annual meeting of shareholders will follow on June 12 and this event will determine the position of GameStop shareholders in the battle of wills between activist investors and current leaders. Hestia proposed two candidates for the GameStop board.
The stock has now fallen 46% in the past 52 weeks, including a 60% rebound from the market low in early April. Investors hope for a rebirth this holiday season, due to strong demand for the next generation of video game consoles. Let’s just say I don’t hold my breath while while waiting for this miracle.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
