GameStop Under SEC Scrutiny With Stock Up 1,500% in 2021

GameStop June 10 disclosed it is being investigated by federal regulators from the Securities Exchange Commission — the result of months-long stock volatility that has seen the video game retailer’s shares skyrocket 1,500% in value in 2021.

The retailer said it is reviewing the regulatory request, producing the requested documents and intends to cooperate fully with the SEC.

“This inquiry is not expected to adversely impact us,” GameStop said in a statement.

After raising almost $552 million from the issuance of 3.5 million shares in April, GameStop said it plans to issue another 5 million shares in the near future. The stock, along with AMC Entertainment’s, has become fodder for individual traders fueled by social media and crowdsourced stock moves. Company shares closed June 9 up over $300 a share from little more than $4 per share last July.

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“The trading probe is definitely a big red flag,” David Trainer, CEO of research firm New Constructs, said in a media interview. Trainer characterized the SEC probe as “the needle that can bust the balloon of the stock’s valuation.”

Wedbush Securities media analyst Michael Pachter contends the regulatory investigation is normal in light of the stock jump. But the analyst believes the June 10 morning decline in share price has more to do with the new stock sale.

“We think that the sell-off had little to do with the fundamentals and everything to do with the company’s failure to reveal its strategy,” Pachter wrote in a June 10 note.

Regardless, Texas-based GameStop saw first-quarter sales (ended May 1) increase 25% to $1.27 billion, from revenue of $1 billion in the previous-year period. Net loss narrowed nearly 60% to $66.8 million, from a net loss of $165.7 million a year earlier.

Speaking on his last call as CEO, George Sherman said the increased revenue came despite the closure of 118 under-performing stores. GameStop still operates nearly 4,700 stores worldwide.

Former Amazon executive Matt Furlong becomes GameStop’s new CEO on June 21.

Furlong’s arrival, along with fellow Amazon executive Mike Recupero as new CFO, underlines the fact that GameStop’s the future is online and with ecommerce. The chain is adding 700,000-square feet to a fulfillment facility in York, Pennsylvania.

“This new distribution center, which is expected to be operational by the fourth quarter of this year, will enhance our order fulfillment capabilities on the East Coast,” Sherman said on the June 9 call.

 

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