GameStop stock slowly forms a bullish pattern ahead of earnings

GameStop (NYSE: GME) stock price has moved from being a favourite among day traders into being unwanted. It has crashed by over 25% this year and by more than 45% in the past 12 months. Worse, the company has erased most of the gains it made during the meme stock investing era in 2021 as it crashed by 90%.

GameStop earnings preview

GameStop, the giant gaming retailer, has been going through major headwinds in the past few years. Its annual revenue retreated from over $8.2 billion in 2019 to $5.7 billion in the trailing twelve months (TTM).

Some of its initiatives have failed. Last year, the company decided to give up on its non-fungible tokens (NFT) industry as it struggled to gain meaningful sales.

Further, the company recently announced that it would start to use its excess cash to invest in other companies. Some investors have cautioned that this would be a bad decision since GameStop is not a mutual fund. Instead, they believe that GME should use this cash to buy back its stock. 

Therefore, the GME stock price will be in the spotlight on Tuesday as it is set to publish its financial results. These figures will provide more colour about the state of the business as the gaming industry slows.

The most recent financial results revealed that GameStop’s revenue retreated from $1.18 billion in Q3’22 to $1.08 billion in Q3’24. On the positive side, the company narrowed its loss from $94.7 million to $3.1 million as it slashed its SG&A expenses.

The other positive about GameStop is that it has one of the best balance sheets in the retail sector. It ended last quarter with over $909 million in cash and $300 million in marketable securities. It has minimal debt, with just $20 million in long-term debt.

Analysts expect that GameStop’s revenue in Q4 stood at $1.16 billion, a small improvement from the $1.13 billion it made in Q3. That figure will also be higher than the $1.08 billion in the same quarter in 2022.

GameStop stock price forecast

GME chart by TradingView

The weekly chart shows that the GME share price has been under pressure after peaking at $120.68 in 2021. It has constantly remained below the 50-week and 25-week Exponential Moving Averages (EMA).

The stock has also formed a falling wedge pattern, which is nearing its confluence zone. In most cases, this pattern is one of the most bullish signs. The wedge is nearing the confluence level while the Relative Strength Index (RSI) remains below the neutral point.

Therefore, while it is still risky, the stock will likely have a bullish breakout after earnings. If this happens, the next point to watch will be at $15.

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