GameStop's Earnings Are Coming. Expect Volatility.

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After a relatively quiet couple of months, GameStop stock is back in the spotlight. The videogame retailer-turned meme sensation is set to report July quarter results after the market closes on Wednesday.

The consensus among the four analysts still covering the stock and providing estimates to FactSet is that the company (ticker: GME) will report a fiscal second-quarter adjusted net loss of 67 cents a share. They forecast sales of about $1.23 billion, down from $1.28 billion in the first quarter but an improvement from $942 million in the second quarter of last year.

For Wednesday evenings report, options markets imply a 9% to 12% move, up or down, after earnings. If the past two reports are any indicator, expect volatility.

More important to investors will be updates from the companys new management team. Activist investor and Chewy co-founder Ryan Cohen joined the GameStop board in Januarywhich kickstarted the stocks initial surgeand became the boards chairman in June. CEO Matt Furlong and Chief Financial Officer Mike Recuperoboth Amazon.com alumsstarted in their roles at GameStop on June 21 and July 12, respectively, so this will be both executives first earnings report.

Through hiring a swath of executives with substantial e-commerce experience and investing in fulfillment, the company has signaled progress on efforts to revamp GameStops digital presence and customer service efforts. Still, Wedbush analyst Michael Pachter told Barrons the company hasnt provided any substance to its strategic ambitions.

They want to be like Amazon, Pachter added.I expect them to keep the mystery alive.

In June, Cohen said he wouldnt make lofty promises or telegraph his strategy to competitors. Still, he listed goals such as delighting customers and driving shareholder value for the long-term. A substantive update, or significant progress on its turnaround efforts, could provide a spark for the stock.

Still, David Trainer, CEO of investment research firm New Constructs, argues shares are trading on meme momentum, rather than fundamentals. He thinks the share price would be closer to $30 if it were trading based on the business fundamentals.

The business results that are implied in GameStops current stock price are far, far beyond what any reasonable person might expect the company to achieve, Trainer says. Even if GameStops management transforms the business into a wildly larger and more profitable enterprise, the stock isnt likely to move higher because that business momentum is already priced-in.

With GameStop shares down 1.9% to $199 on Tuesday, the stock was still up 2,500% in the past year and 956% year-to-date. Shares were down 34% from their close on June 7. While its difficult to nail down what moves GameStop stock on any given day, short seller activity, options volume, momentum trading, and online chatter are among the nonfundamental factors to consider.

Ihor Dusaniwsky, managing director at short-selling analytics provider S3 Partners! , estimates GameStops short interest sits at $1.41 billion. His estimate at 6.94 million shares shorted represents roughly 11% of shares available for trading.

Over the past week we saw significant short covering, Dusaniwsky says, noting shares shorted decreased by about 306,000 shares, worth $62 million, even as the stock price fell.

Write to Connor Smith at connor.smith@barrons.com

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