Should you buy GameStop stock?
GameStop stock analysis. GME.
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GameStop stock jumped 40% yesterday after reporting its first quarterly profit in two years. However, the stock may not be a buy just yet.
At current prices, Gamestop has a market cap just over 7 billion dollars. The short squeeze allowed GameStop to pay off a lot of debt, and so the company now has net cash of 1.3 billion giving the company an enterprise value of roughly 5.7 billion.
In their latest quarter, Gamestop reported an impressive reduction in operating expenses. Cost of sales fell by 8% to 1.7 billion and SGA expenses dropped around 16%. This led to 48 million of net profit in the quarter, its first profitable quarter since 2021.
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However, it’s not all good news. Revenue dropped 1% to 2.2 billion and if we look at the figures for the whole year the company is doing much worse. Net income for the whole of 2022 was negative 313 million and adjusted ebitda was negative 192 million with free cash flow of 52 million.
So Gamestop is valued at just under 1 times revenue or 109 times free cash flow.
Gamestop may have gone the way of Blockbuster if it wasn’t for the pandemic short squeeze that allowed the company to pay off billions of debt.
#stocks #investing #gamestopstock
Visit our Substack for more: https://www.overlookedalpha.com
GameStop stock jumped 40% yesterday after reporting its first quarterly profit in two years. However, the stock may not be a buy just yet.
At current prices, Gamestop has a market cap just over 7 billion dollars. The short squeeze allowed GameStop to pay off a lot of debt, and so the company now has net cash of 1.3 billion giving the company an enterprise value of roughly 5.7 billion.
In their latest quarter, Gamestop reported an impressive reduction in operating expenses. Cost of sales fell by 8% to 1.7 billion and SGA expenses dropped around 16%. This led to 48 million of net profit in the quarter, its first profitable quarter since 2021.
.
However, it’s not all good news. Revenue dropped 1% to 2.2 billion and if we look at the figures for the whole year the company is doing much worse. Net income for the whole of 2022 was negative 313 million and adjusted ebitda was negative 192 million with free cash flow of 52 million.
So Gamestop is valued at just under 1 times revenue or 109 times free cash flow.
Gamestop may have gone the way of Blockbuster if it wasn’t for the pandemic short squeeze that allowed the company to pay off billions of debt.
#stocks #investing #gamestopstock
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NewsTranscript
00:00 Should you buy GameStop stock? GameStop jumped 40% yesterday after reporting its first quarterly
00:07 profit in two years, however the stock may not be a buy just yet. At current prices GameStop
00:13 has a market cap just over $7 billion. The short squeeze allowed GameStop to pay off a lot of debt
00:19 and so the company now has net cash of $1.3 billion, giving the company an enterprise value
00:25 of roughly $5.7 billion. In their latest quarter GameStop reported an impressive reduction in
00:31 operating expenses. Cost of sales fell by 8% to $1.7 billion and SGA expenses dropped around 16%.
00:40 This led to $48 million of net profit in the quarter, its first profitable quarter since 2021.
00:46 However it's not all good news, revenue dropped 1% to $2.2 billion and if we look at the figures
00:52 for the whole year the company is doing much worse. Net income for the whole of 2022 was -$313
00:59 million and adjusted EBITDA was -$192 million with free cash flow of $52 million. So GameStop
01:06 is valued at just under 1 times revenue or 109 times free cash flow. GameStop may have gone the
01:13 way of Blockbuster if it wasn't for the pandemic short squeeze that allowed the company to pay off
01:18 billions of debt. However despite paying off that debt the future of GameStop is still not
01:23 guaranteed. It's bricks and mortar business model still bleeds cash with gross margins of only 23%,
01:29 that's even after cutting costs. That might be ok if sales were growing but there's still no
01:35 indication of any pickup in revenue growth. Meanwhile meme traders may have thrown in
01:40 the towel as the stock has failed to capture the momentum it had previously.
01:46 Let's consider an optimistic scenario where GameStop manages to get to $8 billion in revenue
01:51 in 10 years time, representing 3% annual revenue growth. If the company is able to hit a 10% net
01:58 income margin then trade at 20 times those earnings the company would be worth around
02:03 $16 billion in 10 years time and that works out to an investment return of 11% per year.
02:08 But GameStop is nowhere near that level of profit and it's not showing signs of growth either.
02:15 Management previously spoke of a number of growth ideas such as in NFTs and Web 3.0.
02:21 However none of these ideas were discussed in the latest earnings call and it's likely they've been
02:26 cancelled. GameStop partnered with FTX back in September and had to refund its crypto gift card
02:32 purchases after FTX was revealed as a giant fraud and went bankrupt. So the ball case now seems to
02:39 reside on e-commerce and collectibles. On top of this GameStop refused to answer any questions on
02:45 the conference call or provide any outlook. These kinds of actions don't instill much confidence
02:51 for the future of the company and that's why I give the stock a bearish rating. But these are my
02:55 personal opinions not financial advice and I've got no position in GameStop's stock. For more
03:01 detailed investing ideas visit our website overlookedalpha.com