GameStop (GME) shares came crumbling down more than 22% on Thursday after the gaming merchandise retailer disclosed plans of a convertible notes offering to raise as much as $1.75 billion.
While not explicitly mentioned in the press release, GME is broadly expected to use the proceeds from this offering to buy more Bitcoin (BTCUSD).
Including today’s crash, GME stock is down some 40% versus its year-to-date high just last month.
BTC Strategy Is Failing to Help GameStop Stock
Weakness in GameStop stock this morning suggests the retailer’s investors are not as thrilled about its BTC strategy as MicroStrategy’s (MSTR) were when it first started investing in the world’s largest crypto in 2020.
This could have a lot to do with timing – while MSTR started using its excess cash to buy Bitcoin when it was worth less than $12,000 only, GME’s pivot comes at a time when BTC already sits at near record levels of about $111,000.
GameStop arriving late to the party may be proving concerning for shareholders since it could hurt the overall potential for outsized returns and raises questions about risk management as well.
Wedbush Recommends Against Buying GME Shares
Despite the recently launched crypto strategy, GME shares remain unattractive at current levels, said Michael Pachter, a senior Wedbush analyst in his latest research note.
Pachter recommends against buying GameStop stock because the NYSE-listed firm “lacks a clear strategy” to breathe new life into its core gaming business.
Additionally, investing directly in Bitcoin or BTC exchange-traded funds (ETFs) is much better than investing in the gaming merchandise retailer for crypto exposure at 2.4 times cash, the analyst told clients.
Note that GameStop also reported a 17% year-on-year decline in its net sales for Q1 this week.
GameStop Is Disconnected From Fundamentals
According to Barchart, only one Wall Street analyst currently covers GameStop since the company that’s broadly known as the original meme stock is entirely disconnected from fundamentals.
That one analyst, therefore, rates GME shares at “Strong Sell” with a price target of $13.50, which indicates potential downside of another 39% from current levels.
