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GameStop Corp. Message Board

  • mattewaaronz mattewaaronz Mar 21, 2008 10:31 PM Flag

    Future looks bright for GME

    Here is some additional food for thought based on GME's guidance:

    FY 2009: GME expects their eps to be at least 2.25, which would push the stock price to about $63 if we use their current LOW and UNFAIR earnings multiple.

    FY 2010: GME expects their eps to grow by at least 25% (a very low estimate IMO) which would send GME to $72.

    That's almost a 50% return in two years given today stock price. Not too shabby when you consider that this is an extremely conservative estimate.

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    • How is the multiple unfair? It's trading at a huge premium to other retailers.

      Where is GME in the next console cycle, when digital distribution from the console platform holders really takes off? It's already happening with the GTA episodes (don't expect many trade-ins of that game, with DLC coming), and with GT5 Prologue next month, and WipeoutHD soon, and Warhawk. The limited hard drive penetration and scale in the current cycle means it's relatively minor now, but it's only going to get bigger over time. At the same time GME is busy adding more brick and mortar stores.

      They're losing PC market share to WoW, Steam and piracy.

      The used market is half their profits and is under threat from Best Buy and Circuit City. GameFly is starting to offer store credit for trading in of games. Sure GME will be the king of this business but when one revenue stream is 50% of your profits, it doesn't take a big impact to damage EPS.

      The future looks bright for the industry, and for the short term for GME. Long term, harder to say. For that reason you could easily justify a much lower multiple than they currently have. You could probably justify a higher one, even if I disagreed with it. Perhaps that's why it's so incredibly volatile, because nobody can agree if it's a diamond or a dinosaur.

      • 1 Reply to jesterbunk
      • Hey Jester. Yep, GME has some tough yrs ahead but the big question is "when do they start". We've gone over the whole digital download thing quite few times already. The short answer is that it's not seen as a big threat for at least 3-5 yrs as greater bandwidth becomes available and more people get access to high speed internet (for example: I still can't get reliable high speed access). Additionally, a lot of people (like me) want to have a physical copy of their purchase (call it old school).

        Since GME is different than all the other retailers (who aren't specialized in the VG sector) they benefit much more from the industry success which is why they should have a premium. GME dropped due to the drop in consumer/mkt sentiment over the past months (i.e. the Feb numbers). As that sentiment began to turn last week the buyers came in and pushed GME back up. Their new TTM numbers a lot of fuel to the move as well due to the higher "e" in the p/e.

        Here are 2 of my posts that sum up my thoughts irt the basic multiple valuation and comparing GME's valuation to other retailers. They probably won't change your mind because like you said: "nobody can agree if it's a diamond or a dinosaur."

        IRT the multiple- "IMO" it's about what can be expected until a mkt recovery occurs. If we don't get a good mkt recovery and new highs this yr GME should average a $48-56 range as the contracted multiple remains. If we get a full on mkt recovery (with the associated multiple expansion) the stock could get into the $70's. It's all up to the sentiment of the mkt/consumer which will drive how much $$ comes into the mkt and how high the multiple goes.

        BTW, since "I do" agree that tough comps are ahead I'll be pairing back my current position by about 50% over the next yr and further through Nov 2009.


        P.S. Since you follow the VG sector you may have some input irt a stock I just looked at. Do you have any insight on the company in the following post?:

    • I thought it was just a Freudian slip! lol

    • LOL that was supposed to say "my wife & I" but something apparently happened in the edit room ROFLOL. The Generals (wives) do have a big influence though.


    • <"Did your success trading allow you to retire?">

      --> Yes that and the ability of my wife to save 75-80% (yes 75-80%) of our combined incomes while I was on active duty. Save early-Retire early.


    • That's a little more experience than me. I've been investing for about 2 years and actively trading for about 6 months. My results have been less than stellar so far, but I have learned a lot and I feel good moving forward. Did your success trading allow you to retire? Trading from Hawaii must be nice, although you got to get up early. I've been to Maui several times and love it.

      And your right about holding down a full time position while trading. It's a balancing act ;)

    • <"How long have you been trading options?">

      --> 15yrs but probably the equivalent of 18-20yrs for a "typical" part time trader because I've been doing it full time for the past 3yrs. I still don't know how some of the non-retired people on these MB's get so much time to follow the mkt and the MB so actively. I feel a productivity decline... LOL

      I'm more of a value guy. Value in a growth stock is a home run. Value in a growth stock that turns into a momentum play is the Holy Grail... The trick is to not let those "holy grail profits slip away (which I've done before). That's why I like buying puts on big gainers. You can pay relatively cheap prices for them if you stay with the front month puts.

      I've been burned by momentum stocks. It's hard to buy strangles or straddles on too because the option premiums go wild as the momentum heats up.


    • Sounds like a couple solid trades. I like the idea of protecting gains with options. It seems to work pretty well for you. How long have you been trading options?

      Momentum trades can be fun if you are on the right side of them. It tough when they turn though. Most of my trades were momentum based when I first started trading. While I'll still use that strategy from time to time, I seem to be better off buying mispriced stocks (i.e. value).

    • It's "climate change" remember?... ;-) LOL

    • he does tend to chase the global warmers predictions....

    • <"Looks like you'll be able to sell those AAPL calls sooner rather than later.">

      --> I sold them today for $17. The stock will probably go to $180 now lol... I also sold JPM May $47.50C's & bought the Apr $42.50P's (brought in $1.9 on that combination). If assigned that's a $37.1 to $47.5 move in a month. If it drops to $40 again I'll buy more.

      <"O/T Do you always wait for stocks to fall to your price?">

      --> It's extremely rare for me to chase "anything". That takes me out of most momentum trades and has cost me a lot of profits in those situations "but" it's saved me a lot of "unwinding" loss as well. If one stock (or sector) runs up there's always another trade out there.


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