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GameStop could be headed for disaster as stock price plummets


New developments for games retailer GameStop mean some pretty bad news for those rooting for the company. The stock price for the chain has dropped like a rock over the last few days. This drop is reportedly the biggest one-day loss in GameStop’s history.

The previous extreme low for the stock was in February 2003 when GameStop prices traded at $4.12. The current low of $4.80 is a pretty major signal that the planned attempts to bring the retail outlet back from the brink of closure may fail. With a nearly 40% fall in stock price, it just doesn’t look good. And this doomsaying is often being echoed by analysts across the industry who are reacting to the news that the company leadership is losing faith. The company isn’t currently seeking a buyer, and this new low may make that in impossibility.

One major signal being pointed to as reinforcing this idea is that GameStop announced a temporary hold on paying out quarterly dividends to shareholders. This is typical of companies who are losing cash faster than they can generate it, a state the games retailer has been in for a long time. “The elimination of the quarterly cash dividend sends a worrisome signal that management has lost confidence in the company’s cash flow generation ability, says Loop Capital Markets analyst Anthony Chukumba.

Analysts also signal that the hold rating for GameStop is plummeting in value. A company with a hold recommendation generally is expected to perform with the market or at the same pace as comparable companies.  And this slashing of financial confidence is a pretty bad sign for the future of the company. It echoes the fact that GameStop has consistently been behind the curve of retail in the games industry that has pivoted hard towards digital and online distribution.

All of this could turn around if GameStop manages to pivot hard enough to bring back consumer confidence and generate new sales over a sustained period, but that seems less and less likely as the trend for games retail moves more towards other mediums beyond traditional brick-and-mortar stores.

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