Author Topic: GME - Game Stop Corp  (Read 22754 times)

Cameron

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Re: GME - Game Stop Corp
« Reply #10 on: October 09, 2017, 11:23:59 AM »
My big worry would be that most games are going to eventually only be downloads and will thus have no physical media.  This is going to put a pretty big dent in GME's business.

Of course, they might migrate to selling consoles (new & used), controllers, do hickey's, LCD screen repair and so on....but I think it would be a MUCH smaller business than what it is now.

Question is what does their business look like in 4-5 years?

Probably needs a HUGE discount to make it worth while.

That's the biggest question does half industry average as well as half their 5 year average free cash flow and a 7% dividend provide enough value for the risk of what the business could be. Cash flow would have to be cut in half for the dividend to not be covered, but then we've seen download only games for a while.

Still researching but it piqued my interest when it came up on a screen.
« Last Edit: October 09, 2017, 11:27:35 AM by Cameron »


Cameron

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Re: GME - Game Stop Corp
« Reply #11 on: October 09, 2017, 11:49:36 AM »
Just wanted to throw this out there its trading at the same valuation that it did at the deepest of the Financial Crisis when it had 38% more shares outstanding and B/V has doubled. Free Cash Flow has been fluctuating slightly but otherwise has been flat for 10 years. And it didn't have a dividend during 2008.

If the only risk  that the market thinks is that this business model will be wiped out in 3-5 years it might be worth a position given that business hasn't really deteriorated in such a fashion that would give me alarm. Unless they are overextended with stores and employees.   

writser

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Re: GME - Game Stop Corp
« Reply #12 on: October 09, 2017, 11:57:35 AM »
FWIW I think book value is a useless metric here. There's 2.2b in intangibles, tangible book is close to zero, NCAV is negative and they have ~900m in debt and long term liabilities. If their business deteriorates there is no safety in the balance sheet.
When you are dead, you do not know you are dead. It's only painful and difficult for others. The same applies when you are stupid.

tombgrt

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Re: GME - Game Stop Corp
« Reply #13 on: October 09, 2017, 12:12:14 PM »
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.

Cameron

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Re: GME - Game Stop Corp
« Reply #14 on: October 09, 2017, 12:26:40 PM »
"Dealer Agreements" are valued at 400m which comes from a deal they did with Cricket and Spring and the Goodwill comes from "technology brands" not to sure where they get these numbers from.

They took a 600m goodwill charge in 2012.

MrB

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Re: GME - Game Stop Corp
« Reply #15 on: October 09, 2017, 03:44:59 PM »
Also want to watch that rent coverage (EBIT + rent/rent + int). Covered 2.09x now, so ok

Cameron

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Re: GME - Game Stop Corp
« Reply #16 on: October 09, 2017, 03:59:43 PM »
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.

Just figured I'd ask what you mean by a value trap? usually when I think of a value trap its a company who has traded at depressed prices for a long period of time. GME has traded sideways for a year and a half and was as much as $45 about 2 years ago.

Cameron

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Re: GME - Game Stop Corp
« Reply #17 on: October 09, 2017, 04:11:59 PM »
Just from a quick calculation if net margins were cut in half FCF would look like

2016: 218.5M vs 353M
2015: 282M vs 402M
2014: 124.5M vs 393M

Dividend is covered in 2016, 2015 slightly and not in 2014. Its a cash flow story and I like assets when I invest I'm leaning towards moving on.

tombgrt

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Re: GME - Game Stop Corp
« Reply #18 on: October 09, 2017, 11:48:32 PM »
Value trap if you ask me.

Very high level view I think it's important to know what margins would do if revenues from physical games sold took a further dive. Selling consoles and doing some repairs likely isn't going to be enough to carry operating costs that you can't easily dial back.

Just figured I'd ask what you mean by a value trap? usually when I think of a value trap its a company who has traded at depressed prices for a long period of time. GME has traded sideways for a year and a half and was as much as $45 about 2 years ago.

I mean that valuation will likely remain cheap but that as fundamentals detoriate, so will stock price. As an investor, you'll get the feeling of being "trapped" as at any point in time the stock will still look attractive because stock price will have followed fundamentals down.

The fact that it was at $40 two years ago doesn't indicate it can be a value trap from this point forward. I just believe it's likely to be a value trap from here on out. Valuation by the market seems to indicate that too. But I could be entirely wrong and this thing could double as the business proves its more robust than I think.

kab60

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Re: GME - Game Stop Corp
« Reply #19 on: October 10, 2017, 08:19:19 AM »
This reminds me of Outerwall, but here you have a lot more leverage due to a large retail footprint/leases and with Outerwall you had Coinstar as downside protection. I think it's a worse case, and a lot of people lost money on Outerwall. Ask yourself if you'd honestly consider GME if it wasn't for the divy. I don't think many would, but it's useless if things deteriorate and you end up owning an over-leveraged retailer with declining earnings (I think they're in a tough spot but not sure. Just don't see any downside protection, and what's the upside?).
« Last Edit: October 10, 2017, 10:30:40 AM by kab60 »