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GameStop Corp. Message Board

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  • hbeetroot hbeetroot Feb 8, 2011 10:42 AM Flag

    Digital downloads will kill this stock!

    "but also the yield is zero!"

    $500 million buyback begs to differ. GME are return free cash to stockholders, so how can you say the yield is zero??

    And the term of the annuity for EVERY stock is unknown. You just think you have greater visibility on GMEs future. Every investor has to make an assumption of the company's future prospects when they value them.

    5 years from now many, many companies will be superceded by competitors or substitutes that you have no visibility of today.

    GME could be a very different company in 20 years from now and still be prosperous.. companies don't stand still, they react to changing market conditions. GME at least is in a cash rich position where they are able to do so.

    Anyway free cash flow 20 years from now is of little consequence if you are discounting future cashflow at their cost of capital. The difference between 20 and 50 years of consistent cashflow is maybe 15%.

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    • "$500 million buyback begs to differ. GME are return free cash to stockholders, so how can you say the yield is zero??"

      A buyback is not yield because it is not a direct return of equity to shareholders. It can potentially increase the future yield, but when that yield is zero, you're just getting a bigger slice of nothing. Also, keep an eye on the total shares floating. If a buyback is offset by stock and option issues to employees/management, it may just be a tool to funnel shareholder's money into management pockets.

      "5 years from now many, many companies will be superceded by competitors or substitutes that you have no visibility of today."

      Yes. Avoid all such stocks ... especially when their path to irrelevance IS visible.

      "GME could be a very different company in 20 years from now and still be prosperous."

      GME is currently a retailer. They will have to become something completely different in 10 years in order to be relevant. Why invest in a company that requires a complete overhaul? You must have 100% faith in management's decisions in creating a completely new entity which is completely out of your control as an investor. In GME's case, management has already shown that their strategy is still primarily to open new stores.

      • 2 Replies to spanxds
      • "In GME's case, management has already shown that their strategy is still primarily to open new stores."

        Not the case recently if you do your research.

      • "A buyback is not yield because it is not a direct return of equity to shareholders. It can potentially increase the future yield, but when that yield is zero, you're just getting a bigger slice of nothing."

        You are assuming that they will never pay a dividend in the future. Based on what exactly? You have no idea what their future dividend policy will be, so to say "bigger slice of nothing" is pretty ridiculous. Even more so considering that they are presently massively cash flow positive.

        ". Also, keep an eye on the total shares floating. If a buyback is offset by stock and option issues to employees/management, it may just be a tool to funnel shareholder's money into management pockets."

        Riiight.

        1) management options are not that significant for GME

        2) even if they were high, $500 million is going to dwarf an options, wouldn't you say?

        "Yes. Avoid all such stocks ... especially when their path to irrelevance IS visible"

        You have no idea what those stocks will be. The difference is with GME the worst case scenario is pretty much priced in with the subsequent potential for upside.

        "They will have to become something completely different in 10 years in order to be relevant."

        Speculation. The retail game market will very likely be smaller, yes. But exactly how large it will be globally in markets GME operates in we don't know for sure.

        "Why invest in a company that requires a complete overhaul?"

        True enough, however at some point the valuation becomes compelling based on their expected future cash flows even assuming a decline over the next decade. If they manage to reinvent themselves its icing on the cake.

 
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