GameStop Corp. (GME) shares fell about 10% during Thursday's session after two activist investors delivered a letter to the board demanding representation on the board. Hestia Capital Partners and Permit Capital Enterprise note that shareholders have lost 85% of the value of their investment over the past five years and directors have no exposure.
The activist investors believe that the company's intrinsic value – which they believe could equate to a share price in the high teens – will only be realized if the company is properly governed. The departure of four long-tenured directors and the appointment of three new board members is a step in the right direction, but no independent directors own a significant stake.
In recent quarters, analysts have expressed concern that GameStop has been taking increasingly desperate measures to boost sales as it struggles with major revenue losses caused by a consumer shift to digital sales. Polygon's Colin Campbell cited reports from current and former managers regarding missed targets and increasingly desperate actions.
From a technical standpoint, the stock moved lower from key resistance levels. The relative strength index (RSI) remains neutral with a reading of 45.59, but the moving average convergence divergence (MACD) continues to trend higher toward the zero line. These indicators suggest that the trend could start to turn around over the intermediate term.
Traders should watch for a breakout from trendline resistance toward the 50- or 200-day moving average at $4.37 and $5.00, respectively. If the stock breaks down, traders could see a move toward reaction lows of around $3.18 per share. It's worth noting that the near-term price action could be driven more by the overall market's volatility than fundamentals.
The author holds no position in the stock(s) mentioned except through passively managed index funds.