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GameStop Still Not A Value Play

Feb. 01, 2019 9:54 AM ETGameStop Corp. (GME)6 Comments
MGB Research profile picture
MGB Research


  • Here I review recent developments at GameStop and why the company still is not a value stock.
  • The sale of the company's wireless business may offer a reprieve, but only if management uses the proceeds wisely.
  • GameStop still has far too many red flags to make it worth considering, including severe management turmoil.
  • The company is circling the drain, albeit slowly.
  • The case for GameStop is more speculation about a potential buyout than investing for the future.

Ten months ago, I reviewed why GameStop (NYSE:GME) was not a “value” stock. A low P/E ratio and a high dividend yield do not automatically qualify a company as being good value. One of the main arguments for buying shares – that the company would inevitably be taken out by private equity – was recently dashed by an announcement by GameStop’s board that it would cease looking for a buyer. Shares are down 24 percent since I wrote about the company in March 2018.

The many negative aspects of the company remain unchanged, and if anything, they have only gotten worse. Benchmark analyst Mike Hickey said it best last December:

[GameStop] has become irrelevant in the videogame market, as consumers accelerate the migration towards digital purchases, and as games adopt live service models that greatly extend the average play experience and where platform/publishers work towards future subscription/streaming models.

Although the $735 million sale of the company’s wireless store chain bought more time, I maintain that the company is circling the drain - slowly but painfully.

A Boss Level Challenge

GameStop's stock briefly surged last June when the board announced that it was reviewing "strategic alternatives," including a sale of the company. By the fall, many observers were convinced that a deal was imminent. The speculative frenzy ended almost as soon as it began, however, when GameStop revealed that a sale was off the table due to lack of available financing.

The fact that no deal was consummated is in itself a red flag for anyone considering buying shares now. Do stockholders really think they know something that private equity does not?

In any event, the sale of GameStop's wireless business offers something of a reprieve - if management allocates the cash injection wisely. The company has been vague on its plans for the asset

This article was written by

MGB Research profile picture

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.

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