Entering text into the input field will update the search result below

GameStop: What The Numbers Say

Jul. 13, 2017 8:33 PM ETGameStop Corp. (GME)18 Comments
Casacampo profile picture


  • GameStop is strategically well positioned as a specialty retailer, but sales growth seems to be a real weakness.
  • The market hasn't been willing to pay more than 10 times earnings on average, in the last decade. The P/E is currently at 6.4, thus indicating a 36% discount.
  • The company has been struggling to maintain its excellent business operations. It has for instance gone from an average of -1 day to +50 days that cash is tied up.
  • Its loyalty program, with 53 million members, is a core strategic asset that can be leveraged for its business expansion. Current market capitalization indicates a value of $40 per member.
  • There is ample working capital and free cash flow for future growth, organic and through M&A.

As investors we continuously try to identify opportunities that can provide great returns with a suitable margin of safety. In this article, we analyze if specialty retailer GameStop (NYSE:GME) is currently such an opportunity. By doing a valuation based on the long-term trends in the company's financial statements and by analyzing strategic business conditions, we identify key performance indicators. Based on the assessment of these indicators we try to come to a conclusion if this stock is currently an attractive buy.

Source: investor.gamestop.com

Valuation (+)

GameStop is a multichannel video game retailer that since 2014 has significantly underperformed its industry and the S&P 500 as a whole, as is shown in the graph below. The main reasons for this are: the very strong competition from online retailers like Amazon (AMZN), aggressive hardware promotions by other retailers like Best Buy (BBY) and the ongoing changes in software distribution.

Source: adapted from morningstar.com

To combat the decline in hardware and software sales, GameStop expanded its technology brands offering in 2014 by entering into a strategic agreement with AT&T (T) and Cricket Wireless. In 2015, it moved into the collectibles market by acquiring GeekNet. In 2016 it even entered the indie game publishing category with the launch of GameTrust division. So GameStop understands the need to find new revenue streams, but the market has not reacted. The market price is close to its 52-week and 5-year lows, as is shown in the gauges below.

Source: data from morningstar.com

Dividend is forecast for 2017 to be $1.52, or about 7% based on the current market price, as also shown in the gauges below. For the next year the dividend is expected to grow by 2.6%, with an analysts' consensus (source) of $1.56 for 2018. The dividend has significantly increased since its introduction in 2012, about 80%. Dividend

This article was written by

Casacampo profile picture
Private investor with diversified portfolio of international stock. Focus: identifying and capitalizing on undervalued investments.

Analyst’s Disclosure: I am/we are long GME. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.