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Why GameStop Stock Dropped 10% Today

By Rich Smith – Aug 27, 2018 at 3:27PM

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Rumor has it, the buyout rumors have ceased.

What happened

A little over two months ago, a GameStop (GME -1.98%) press release announcing that the company "is in exploratory discussions with third parties" about potentially selling the company helped to explain an otherwise inexplicable five-day, 22% run-up in GameStop's share price.

Two months later, the absence of any confirmation of a deal to sell the company may explain why GameStop shares were down 9.8% as of 2:45 p.m. EDT on Monday.

Wall mural of big fish chasing little fish

Investors are still waiting for a buyer to gobble up GameStop. Image source: Getty Images.

So what

Two months ago, GameStop told investors it did not intend to tell them anything else regarding its go-private discussions "unless and until it is appropriate to do so." And for more than two months, we've been waiting for something "appropriate" to happen -- without result.

GameStop's stock price has more or less stagnated during this period, even falling a bit from the day the "exploratory discussions" were announced, before spiking again last week -- perhaps on hopes a new announcement was forthcoming.

Now what

Today, Bloomberg is hypothesizing that investors are "losing hope" that GameStop will succeed in selling itself. That makes sense. Still, with Bloomberg producing no evidence to either support or disprove this thesis, I suspect it's just guessing about that, as much as any of us are.

All we know for sure is that, if a buyer doesn't appear, investors will have to hope for GameStop to produce good news of its own when it reports earnings on Sept. 6. For what it's worth, Wall Street is only looking for GameStop to report $0.08 per share in earnings on $1.6 billion in revenue -- a near-50% drop in profit on less than a 5% decline in sales.

Unless GameStop can clear that low bar, a buyout offer may still be investors' best hope.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool owns shares of GameStop and has the following options: short October 2018 $15 calls on GameStop. The Motley Fool has a disclosure policy.

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