GameStop shares tumble as analysts sound death knell for long-term value growth

Expert issues warning as the market for new gaming systems matures after new launches from Microsoft and Sony

Analysts are predicting that GameStop's share performance has run out of steam.

GameStop’s Reddit-fuelled trading surge is likely going to fade as threats from digital game downloads sink in, according to one sceptical Wall Street analyst.

The stock slumped after Ascendiant Capital Markets analyst Edward Woo downgraded the retailer to ‘sell’ status from ‘hold’, saying increasing digital sales for video-game publishers is a looming risk given GameStop’s minimal market share.

He warned about the long-term prospects for the company as the market for new gaming systems matures after new launches from Microsoft and Sony.

The video-game retailer’s 741% surge this year through last Friday’s close pushed its market value to $11bn (€9.2bn). 

However, Mr Woo expects shares will tumble in the long run “to match its current weak results and outlook". 

He trimmed his price target for the GameStop stock to $10 from $12, implying as much as a 94% drop from Friday’s close at $158.36.

Gamestop’s shares reversed initial gains to slump as much as 12%. The stock has shed a quarter of its value in the past six sessions after a company plan to sell as much as $1bn in additional shares.

The stock now has five sell-equivalent ratings, among analysts, compared to two hold ratings and zero buys. An average price target of $46.50 implies shares will lose two-thirds of their value in the coming year.

Ascendiant called out the rise in popularity of GameStop on Reddit chat boards and with Robinhood investors for making shares trade on “retail investors sentiment, hope, momentum, and the powers of crowds” in place of fundamental metrics.

• Bloomberg