GameStop's stock price likely to see limited impact from $1,400 stimulus checks, says Bank of America

• The $1,400 stimulus checks being sent to Americans may have a limited impact on GameStop shares, says Bank of America.
• BofA has been analyzing non-fundamental factors on the shares including trading volume and short interest
• GameStop is set to release fourth-quarter earnings on March 23.

GameStop shares are likely to get just a limited bump up in volume activity and price from the $1,400 stimulus checks that most Americans are receiving to help them financially cope with the coronavirus crisis, according to Bank of America.

This year's rush by retail investors into the videogame seller's shares has resulted in the stock price climbing at high as $348 from nearly $19 at the end of 2020. Much of the fervor around the often-volatile stock has come from retail investors on the Reddit social-media platform, who ramped up a battle against institutional short-sellers in late January.

Over the past two months, Bank of America has analyzed the impact on GameStop shares from non-fundamental factors including the number of conversations on Reddit relating to the stock, trading volumes, and short interest. The factors "have shown a tight relationship and large increases have corresponded to several big surges in GME's share price," the firm said.

Then the bank began taking into consideration the $1,400 checks the government starting sending out this month. It analyzed the number of conservations mentioning stimulus, as well as "stimmies" and stimmy", on online forums then plotted the data against GameStop's share performance.

In late December and ahead of the round of $600 stimulus payments sent under the Trump administration, "there was indeed a spike in stimulus mentions and this was followed by an even larger increase over the past two weeks," from March 2 through March 17.

"These spikes also coincided with significant increases in GME's share price," wrote the bank in a note led by Curtis Nagle, director of equity research at Bank of America.

But "the impact going forward may be limited given two factors," the bank said. First, conservations involving stimulus "appear to have peaked" and GameStop shares have declined over the past few days. Secondly, the number of recent conversations including both GameStop and stimulus "is low. GME trading volumes are also steadily declining and short interest is down materially."

The next event on the radar for GameStop investors is the release of the company's fourth-quarter earnings after the bell on March 23. "We expect an underwhelming quarter given previously announced holiday sales results that were very disappointing," said BofA.

It noted that GameStop shares over the past five months "have reacted very positively to a string of announcements" including a digital revenue-sharing arrangement with Microsoft and the appointment of Ryan Cohen to be in charge of a new committee aimed at driving a turnaround plan. Cohen is the cofounder of pet products retailer Chewy and GameStop's largest individual shareholder.

Bank of America maintained its underperform rating on GameStop shares "on significant earnings risk ahead."