Your favorite new and used video game retailer is offering you a great bargain on its stock price.

GameStop is a video game retailer.  The company sells both new and used video games to customers throughout the country and other parts of the world.  They have seen a sharp decline in their stock price over the past several years.  However, nearly every stock out there saw the same declines in their stocks during these slower years of our economy.  Since then, the numbers for revenue have improved and have become reliable, as this listing shows:

Published over a year ago
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Reviewed by Raphi Shpitalnik

Your favorite video game rental company has not seen its stock move up like other, more popular companies. This represents a really great opportunity to pick up a great stock at a great price, a company that has been printing very nice earnings over the past couple of years.  And, you can get this company at about 9 times earnings.   

We determine the current worth of GameStop Corp using both absolute as well as relative valuation methodologies to arrive at its intrinsic value. In general, an absolute valuation paradigm, as applied to this company, attempts to find the value of GameStop Corp based exclusively on its fundamental and basic technical indicators. By analyzing GameStop Corp's financials, quarterly and monthly indicators, and related drivers such as dividends, operating cash flow, and various types of growth rates, we attempt to find the most accurate representation of GameStop Corp's intrinsic value. In some cases, mostly for established, large-cap companies, we also incorporate more traditional valuation methods such as dividend discount, discounted cash flow, or asset-based models. As compared to an absolute model, our relative valuation model uses a comparative analysis of GameStop Corp. We calculate exposure to GameStop Corp's market risk, different technical and fundamental indicators, relevant financial multiples and ratios, and then comparing them to GameStop Corp's related companies.

GameStop Corp Investment Alerts

GameStop investment alerts and warnings help investors to get more proficient at understanding not only critical technical and fundamental signals but also the significant portfolio-centered indicators. These indicators include beta, alpha, and other risk-related measures that will help you in monitoring GameStop Corp performance across your portfolios.Please check all investment alerts for GameStop

GameStop Corp Valuation Ratios as Compared to Competition

Our valuation model uses many indicators to compare GameStop value to that of its competitors to determine the firm's financial worth. You can analyze the relationship between different fundamental ratios across GameStop Corp competition to find correlations between indicators driving the intrinsic value of GameStop.

GameStop Corp Gross Profit

GameStop Corp Gross Profit growth is one of the most critical measures in evaluating the company. The Gross Profit growth rate is calculated simply by comparing GameStop Corp previous period's values with its current period's values. Each time period you're measuring should be of equal lengths the increase or decrease, in a company's Gross Profit between two periods. Here we show GameStop Corp Gross Profit growth over the last 10 years. Please check GameStop Corp's gross profit and other fundamental indicators for more details.

Breaking it down

GameStop is a video game retailer.  The company sells both new and used video games to customers throughout the country and other parts of the world.  They have seen a sharp decline in their stock price over the past several years.  However, nearly every stock out there saw the same declines in their stocks during these slower years of our economy.  Since then, the numbers for revenue have improved and have become reliable, as this listing shows:

2011:    $2.43

2012:   -$2.13  

2013:    $3.02 

2014:    $3.50  

2015:    $3.80

The rest of the balance sheet is not too remarkable for this company.  Overall, the company has fairly steady liabilities.  Their store growth rates are increasing.  The biggest line to note is that the company took on some debt over the past two years and has been sitting on that for some time.  It is that debt that has been one of the factors that has kept the company’s stock held down.  But, it is that debt that is providing a buying opportunity for this company.  

The debt is manageable with the company’s earnings.  In fact, the ratio is better than a lot of companies that are trading at ratios much lower.  At the same time, the price of the stock, having been sold off and not really moved since, is trading at a price-to-earnings ratio of less than ten.  The company’s cash on hand is more than enough to pay off the debt when the time comes.  

Think about the numbers that I have presented.  There is some debt of about $300 million.  At the same time the company has cash of about $600 million on hand.  The debt is being paid at a an incredibly low interest rate.  All the while, the company is well above profitable on sales of nearly $10 billion.  There is a significant amount of not only revenue but necessary profits as well.  

The stock market has moved significantly since the election in November.  These moves were mostly of stocks that are more popular than others.  But, the move has pushed company’s price-to-earnings levels all the way up to 25.  That would mean that if you bought a stock at such a high ratio you would be receiving 4% on your money by the end of the year.  Whereas a company that is trading at only 10 times earnings would allot you a return of 10%, all else equal.  And, when I look at the numbers from these companies that were pushed up as high as they were I am not overly impressed.  

The economy is improving.  The nation’s unemployment rate is below 5%, a number that is considered full employment.  Basically, that means that not many more people are going to be getting jobs.  But, those that already have a job are going to be able to ask for more pay, or just move to another firm.  So, discretionary spending is going to move higher.  And, companies like GME will benefit from this significantly.  With the price-to-earnings ratio so low this company’s stock price is offering a tremendous buying opportunity.  

One of the best adages with investing is to invest in what you know.  This business model is very simple to understand.  It is a simple retail store.  The company buys and sells video games.  The model may have been sold off during lean years in our economy.  But, the entire economy saw selling across the board with company’s stocks.  Now that the recovery has occurred in the more popular name companies, it is a great opportunity to find those kinds of companies that have not benefited from being mainstream with investing.  GME is one of those companies, and one that should be given a great amount of consideration for your own portfolio.

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Editorial Staff

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