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GameStop stock climbs 12% after announcing a stock split. Time to sell?


GameStop's 12% surge may provide investors a good exit point from a specialty retailer and popular meme stock that's expected to lose money for a fifth straight year.

GameStop (GME) shares climbed more than 12% after the company announced a four-for-one stock. While such moves tend to attract more retail investors, they don't really change the fundamentals for the company that hasn't seen an annual profit since February 2018.

The retailer of video games and gaming accessories said shareholders as of July 18 will get a dividend of three additional shares of GameStop's class A common stock after the close of trading on July 21.

The price rally may provide a good exit point for shareholders seeking to unload their holdings in GameStop, which is expected to keep losing money for a fifth straight year.

The arguments for selling the stock

There's no shortage of arguments for betting against the meme stock, which has been struggling for years. Shares traded below US$20 at the end of 2020, before a Reddit-fed surge pushed the heavily shorted shares briefly past US$300. Supporters have kept it afloat and shares still trade at about US$130, but the business has continued to lose money.

GameStop has reported worse-than-expected losses for four straight quarters, according to Refinitiv data. The meme stock is rated F by Charles Schwab, the lowest in a five-tier ranking.

Expectations for the second quarter have been deteriorating with analysts increasing their estimate for the company's loss to US$1.66 per share, from US$1.48 three months earlier, according to data published on the Wall Street Journal website.

In the fiscal year ending January 2023, the company is expected to post a US$6.33 loss per share, according to estimates on the WSJ website. That would mark the fifth straight annual loss for GameStop, according to data on the Charles Schwab website.

SmartConsensus, which counts Argus, Market Edge and Thomson Reuters as its constituents, has a "sell" rating on the stock and that has proven to be a profitable trade. Over the past year when SmartConsensus rated GameStop a sell, the stock price has slumped 33.6%.

On average, analysts predict the stock will plummet by more than half to US$54.33, from US$131.61 as of 1:01 p.m. Thursday in New York.

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At the time of publication, markets editor Luzi Ann Javier doesn't own GameStop shares.

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