Thanks for the input B.E.O. I actually didn't think the premiums were too bad and was wondering if you were factoring an implied volatility number over a longer time frame which usually demanding the higher premiums. The January 30th at the money put strikes are trading at $2.35, which would be a 7% drop to break even at current levels. I'm looking at the April 17th $4 puts trading at a 10.7% premium. GME has already de coupled from the averages and I'm forcasting on the conservative side that the stock will fall at least 16% to $28.26 by April 17th. I believe it is headed back to its 6 year average baseline of $20 in the next few months, earnings will be the major catalyst. A drop to $28.26 by April will give me a 43% return at expiration. Black Friday through Christmas is the only profitable time of year for gamestop based on my research. This is not well known, but I can tell you that Game stop made a stupid marketing decision to do no black friday ads and they blew it. There should be a big miss this Q. combined with the current gravity from Playstation, online download drain, new market disrupters such as Walmart and BB and horrible management the 3 plus billion market cap is too much. Thanks for throwing out the other stock symbols , I will be checking them out. Cheers - Ryan.
Hello GME Longs,
In every game there are winners and losers. I neither love nor hate GME, nor do I care about gaming one way or another. My game is the stock market game. There are three parts to the stock market game: technical, sentiment and fundamental.
Technical is the charting game. The trend is your friend and all that stuff. Well, GME is well below its 50 and 200 day moving averages which underwent the death cross around December 1. In a very modest bullish move GME bounced up off of its 10 day moving average earlier this week but it was very, very modest ($0.27) and happened during a holiday week. So the technical game is against GME.
Sentiment: Earlier this month both Cramer and Zachs have come out with strong sell signals. In addition short interest grew at a pace of 8 million shares in one month and now stands at nearly 50% of float. And according to Yahoo, in the 3rd quarter institutions shed 3.2 million shares. Sure, if good news pops this may lead to a short squeeze but what the good news does not come? That could lead to a catastrophic collapse. Sentiment is not with GME.
The 3rd element is fundamentals. The usual trailing indicators, EPS, PE and PEG make this stock look FANTASTIC! And to boot there is a stock buyback going on! Remembering that when Treasury Stock is getting increased by borrowed money then there is no net increase in owner equity. That would still be okay if the Treasury Stock was expected to grow in value faster than other investments might but, no, that Treasury Stock is losing value (and will have to be shown as a loss on the books at EOY). What about revenue growth? YOY 3rd quarter saw revenue shrink. What about earnings? Also shrank at an almost 18% rate YOY. What about management? Sold almost 1/2 million shares and bought none at market in the first 3 quarters of this year alone. Long term potential? GME is on the wrong side of the new technology.
Its just the stock market game.
wish you were right however I don't believe in this era of technology GME can sustain eps of $4+ next year.
I hope next year they can still make $3 a share or so. Anything under $3 a share in earnings and this sees the 20's.
Over 1.2 Billion, number of actual sales has increased year over year, gamers are against downloads vs buying hard copies, those using downloads will do so through retail outlets like Gamestop.
Management has made great decisions in 2014 for the future of GME
I hold my forecast of 50 plus by the end of February 2015.
Good Morning Ryan,
I shorted in the low 40's and have a target of the low 20's. At the current price of GME I would urge caution going long on a put because the implied volatility is pretty high. The January 30's are near $5 resulting in volatility over 50%. In other words, you would only start making money on that put once the stock crossed below $25. I believe the stock is in for a big reset and I think it will happen (or not happen) in February. It all depends on how this Christmas went.
Obviously, based on insider sales and management's EPS gimmicks I'm betting sooner rather than later.
Congratulations on 300%. I've had good years and bad. 300% is a heck of a good year.
I am not active on other message boards at this time but have been in the past and will be in the future. I use the boards to air out my opinion and purposefully seek the opposite ideas to challenge my thinking. I exited RDS-B a few months ago and am watching for the time to get back in. I am long LMT and have been for a while but I think it is getting pricey now. I am eyeing QSR for a short.
With volatility so high, if a price collapse happens here in February you might want to consider the bullish strategy of writing short term puts. Just an idea.
It's my pleasure b.o.e! I agree with your every reason to be Bearish on this stock. I don't hold a position yet but I will be purchasing some puts fairly soon, just finishing some last minute research on the company and found out about some stmbles mngmt did this qrter that I don't think many know about yet.! I trade differently from the masses as I like to put the the pieces of the puzzle together of what I think is going to happen from info I gather before the story unfolds. Nothing beats the feeling of seeing that you were right on the mark when the news hits. I have never used trading software to tell me when to buy or sell as I believe these computer generated signals and analysts recommendations are trailing indicators and will always put you one step behind, but I use all the info I can get my hands on starting with a he balance sheet, market cap, enterprise value, competitors, insiders etc. this style has served me well with wins. 300% gains this year. I can see you have the ability to connect the dots which I believe is kind be of rare. Was wondering if you were on any other message boards such as stock twits where I could follow you so I can keep in n touch and possibly ask you for your thoughts every now and I then? Thanks- Ryan
Wow....let me breakdown the investment decision of the debt borrowing and the buyback because you aren't being specific to how beneficial it is and WHY they are increasing their debt...your silly posts are starting to irritate me...
Here are the facts...
$350 million was borrowed...
5.5% is the interest rate
GamStop will make 375 to 400mm in Net income/Net Profit
Let's assume the following....
$350 million is used 100% in a buyback...
If this happens at $35 a share 10 million shares will be reduced (given today's prices it is totally possible)...
Shares outstanding goes from 110 to about 100 million
EPS goes from about $3.40 (LOW END) to about $3.75 just on them reducing share count...if the multple for the business is 10x PE then a shareholder also increases their wealth by $3.50 a share ($34 vs. $37.50)....$350mm in marketcap gain
BUT there is more...10 million less shares means $1.32 per share less in dividends paid out...so that is $13.2 million less in dividends paid (which is after the 40% corporate tax rate)....so even though they are paying 5.5% in interest which is about 19.25 million they are only really paying about $6 million or about 1.7% interest a year...
Wait...there is MORE!!!!.....the tax benefits is actually great for shareholders...interest is expensed which is about 6 cents more but I think any investor would rather take a .35 cent increase in EPS for a 6 cent "increase" in expenses.....
I wouldn't do 100% buyback...I think they get better returns by opening up more cricket wireless, simply mac's or other operational initiatives.....if it were up to me i would lever the comany to about $1 billion and keep growing tech brands and buy back shares because the company produces about 500 million in cash per year and could easily pay off $1billion in debt in two to three years in earnings....in fact GameStop is severely underlevered....imagine the impact on EPS with $1 billion buyback? Apple did nearly $100 billion and it has done wonders!!!!
WOW...you eyes may be wide upon because you are on some crack or something...first of all...an analysis in one store doesn't mean anything....i visited two stores in Miami and i spoke to the clerk at one of them and he told me that one store only 20 blocks away was 5x better than theirs because of the location and type of consumer...
a bet on gamestop is essentially a bet on the low income market that CAN'T afford to buy online because there is no residual value...they also don't have the credit to have credit cards.....you need to really ask yourself who is the customer? it isn't you....and it isn't rich people who have $3000 TV's....Cricket wireless is what type of consumer? Simply Mac is the apple consumer which is fanatical and very very loyal....
Honestly Joe....just stop these posts...it will force me to hire someone to just drown our your stupid posts with hundreds of bullish points....
Hello commondollars. Thank you for you kind words on this message board.
I keep posting my reasons for being bearish on this stock looking for feedback on what I have missed or mis-understood. Other than a first hand report of two busy stores I have not seen too many reasons to curb my bearishness.
I went to the Yahoo insider transaction page and copied the list of insider transactions since February 1. I pasted that list in Excel then deleted all of the non-market acquisitions (these are deals where officers are given zero cost options as part of their compensation). Guess what, not one single insider market purchase since February 1. However, insiders have sold 471,464 shares for $23 million. (raw data below).
Date Shares Value*
8-Dec-14 1,800 63,828
1-Dec-14 10,333 373,847
30-Oct-14 40,000 1,681,600
1-Oct-14 3,500 143,360
19-Sep-14 24,070 1,050,174
19-Sep-14 150,000 6,544,500
19-Sep-14 1,800 78,534
19-Sep-14 20,000 872,600
17-Jul-14 2,100 86,646
1-Jul-14 3,500 141,715
27-Jun-14 90,000 3,637,799
17-Apr-14 2,100 85,344
2-Apr-14 1,130 49,008
2-Apr-14 2,430 105,389
2-Apr-14 3,612 156,652
2-Apr-14 5,780 250,678
2-Apr-14 3,466 150,320
2-Apr-14 1,733 75,160
31-Mar-14 6,000 243,000
31-Mar-14 10,000 4,060,002
22-Feb-14 3,382 120,263
22-Feb-14 3,524 125,313
22-Feb-14 5,639 200,522
22-Feb-14 1,103 39,222
22-Feb-14 1,103 39,222
22-Feb-14 2,371 84,312
22-Feb-14 1,243 44,201
7-Feb-14 5,604 198,942
7-Feb-14 16,680 592,140
7-Feb-14 9,684 343,782
7-Feb-14 1,177 41,783
7-Feb-14 10,455 371,152
7-Feb-14 1,177 41,783
7-Feb-14 3,294 116,937
3-Feb-14 5,703 198,065
2-Feb-14 1,912 67,053
2-Feb-14 3,998 140,209
2-Feb-14 4,425 155,184
2-Feb-14 2,678 93,917
2-Feb-14 794 27,845
2-Feb-14 767 26,898
2-Feb-14 1,397 48,992
Good Morning Tytus1212,
You make two independent points. First is that the increase in debt, from near zero to $350 million over the past 9 months was a good thing for the longer term. Second you point out that there are not enough shares available to cover the shorts should good news come.
First: In business the decision to incur debt is calculated as a ROI with payback stated in terms of years. For instance, building a new store for $1million which will contribute an additional $250k per year to net earnings will have a ROI of 4 because the store will pay for itself in 4 years. You borrow the money, you get a store with a life span of more than 20 years. In the end the borrowed money will have a long term pay back of $5 million (250k * 20 years). Now do the same math with the share buy back. Borrow money at 5% to buy an asset that is paying 3.5% you NEVER get your ROI, EXCEPT, if the value of the asset grows. So the only way this stock buy back works is if the value of the shares bought back grows faster than the accumulation of the excess cost of money (interest) over the income stream produced by that money (dividends saved). Now that may certainly happen, I just don't think so.
Second (lack of shares to cover)... I've pointed out in several posts that the behavior of the shorts and the obvious very deep pockets of the shorts strongly suggests that they are already covered. That is to say the HUGE DEEP POCKET long institutions that currently hold 125% of the shares did not close out their long positions, they just shorted the stock. Look at the math: If you are long and decided to sell last month at $42 then you get $42 and you get no further participation in the stock up or down, you are out. However, if you do not sell but instead short the stock at $42 then you get $42 in your account and for every up/down move you gain/lose equally from your long/short. Why would you do this?
If you were short, how would you create a stampede?
beo00; your claims regarding debt vs borrowed money buyback is not truly correct. The numbers for GME make huge sense and sets up GME for the next 3 to 5 year business plan. GME gains access to a much larger amount of cash by making this deal, Recovers 15% plus of earning vs 5% interest, hell of a deal for GME at these times. No one can be 100% sure what is going to occur in time but downloads will not replace the GME stores.
If and I acknowledge IF, the news is good and shares start jumping, where the shares going to come from to cover short positions?
If you are on east coast time then you have been posting since about 4:30 this morning! Now that is dedication!
Though I am bearish, I am certainly not thinking bankruptcy. I merely believe that there will be a big reset downward. Shrinking year over year sales will result in a disproportionally large decrease in earnings. A shrinking company gets a much smaller multiple than a growing company. Even though there is a very large buyback going on it is happening on borrowed dollars (I'll show you below that debt is growing very fast). When all of that stuff happens then there will be a change in management followed by layoffs and store closings and there will be a reset of GME's marketing strategy... maybe expanding the product line to include all kinds of software as well as games. But all of that will take years.
Stock buyback is being done with debt while cash is shrinking. The following is from the balance sheet right here on Yahoo.
Current Assets - Cash and Equivalents
Feb 2014: $536,200 ($536 million at beginning of FY)
Nov 2014: $374,000 (About $160 million less nine months later).
Long Term Debt:
Feb 2014 $1,600; ($1.6 million at beginning of FY)
Nov 2014: $350,200 ($350 million !!!! 9 months later) (roughly 25 fold increase)
Let's not forget that the borrowed money was at 5% and was used to buy back stock that was paying out a 3.5% dividend at the time and the stock was bought at an average price of $41 so it has lost an additional 20% or so of its value.
Nothing fishy there to you?
... just a little bit more info... less anecdotal... from Master Card's Christmas sales statistics...
"(Reuters) - U.S. retail sales rose 5.5 percent from the day after Thanksgiving through Christmas Eve as solid demand for women's apparel, jewelry and casual dining offset surprisingly sluggish sales of electronics, MasterCard said in its holiday spending report".
And from that same story this morning...
"Contrary to some experts who predicted a strong showing for electronics, the category was among the weakest, with sales "basically flat" from Black Friday to Dec. 24 and in negative territory when looking at sales starting on Nov. 1, according to the report".
Here is the link: https://ca.news.yahoo.com/u-holiday-sales-show-steady-growth-mastercard-153525014--sector.html
Good Morning JK4763,
I confess that I have only been tracking one store. That store is in North Olmstead, Ohio. It is in a middle/upper middle class bedroom suburb of Cleveland. I have been going into the store and talking with the clerks. I have also checked with the gamer enthusiast who works at the store next door.
Based on that one store only...
Black Friday was a complete bust. The poor clerk who opened the store at midnight told me at 9:00 in the morning that he had only one customer at 3:00 a.m. While I was there only one couple came to the store, asked by the prices on some controllers, then left without purchase.
Christmas Eve, at 4:30 p.m. (the most prime shopping hour in history) there were about 6 people in the store. The clerk told me it had been a normal Christmas season and pointed to the wall where he was sold out of several of the game controllers. I asked about software sales (games) and he said normal. I definitely got the idea that the young man was being defensive.
Checking with the enthusiast at the store next door he said he only saw trickles of people drifting in and out of the GameStop He also told me that he no longer shops there himself preferring to buy online.
The above is not only non-scientific, it is downright anecdotal. But it is what I saw and heard none the less.