(Bloomberg) — GameStop Corp. disclosed an unorthodox plan for its roughly $900 million in cash and equivalents: allow its billionaire chief executive to buy stocks of other companies.
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Buried in the earnings filing, the new policy enables, Ryan Cohen — the video-game retailer’s largest shareholder who has a cult-like following among individual investors — to invest in equities instead of short-term loans. The pivot caught some Wall Street analysts off guard.
Wedbush’s Michael Pachter, one of GameStop’s most vocal skeptics, called it “one of the most inane moves we have ever seen” while Vital Knowledge’s Adam Crisafulli simply pointed out that the update was “receiving a lot of attention.”
A pivot to invest in other industries and companies stands out from what most of Corporate America does: put its excess cash in safe short-term government bonds which are yielding more than 5%. That raises the bar for Cohen to beat the market at a time when economic uncertainty lurks and after an 19% rally for the benchmark S&P 500 so far in 2023.
The new investment policy enables Cohen to deploy capital to both public and private markets that may mirror his own personal holdings, the filing said. The mandate extends beyond just stocks, with the board allowing investing in “equity securities, among other investments.”
The company isn’t worried about GameStop potentially backing the same companies Cohen holds as “it places the personal resources of Mr. Cohen at risk in substantially the same manner.”
To Wedbush’s Pachter, it’s a signal that investors should continue to steer clear of GameStop. He rates the stock underperform and expects shares to lose more than half their value in the next year.
“Investors have a myriad of investment vehicles available to them and therefore do not need GameStop to act as a mutual fund,” he wrote in a Dec. 7 note. “The company’s decision to invest in equities other than its own is alarming, implying that GameStop management believes it will achieve better returns by buying equities aside from its own.”
GameStop didn’t respond to requests for comment on the new plan.
Read more: GameStop Options Traders Pile Into Hedge Against a 760% Gain
Shares of the Grapevine, Texas-based company are now more than 80% below their January 2021 peak after Cohen helped spark a more than 2,000% surge in a matter of weeks. Following Wednesday’s mixed quarterly report, the stock swung between an 8.6% drop before gaining 3.1%.
–With assistance from Redd Brown.
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