Now that GME's PPS seems to have strong support around $20, it's probably a good time to reflect on the good and the bad going forward.
FWIW, even if the recent price action doesn't seem to justify it, I'm as bullish as ever on GME.
- 30% more consoles on the market than last year
- Best new games lineup in history of gaming
- Easy comps until November
- P/E around 8
- Natal + Sony Arc
- Buyback program
- 400 new stores
- Game Crazy basically bankrupt
- Best Buy + Walmart abandoning used games
- Strong short position
- Participating in DLC business
- US Economy stabilizing
- Strong bonus incentive with every new game
- Strong market skepticism with Onlive
- Analysts target price around $30
- Poor management credibility
- Next Xmas repeat price wars probable
- Strong short position
- Hardware shortages in December / January
- Casual gaming
- European economy (Spain, Italy, Portugal)
- DLC business small, but gaining ground
- Brick & Mortar negative Wall Street perception (puts a discount on P/E)
How do you make a list like this and not include the single biggest factor affecting this stock? ... The fact that the entire videogame industry is hurting.
Do you really believe developers and publisher can be squeezed from profit to loss but this retailer will be unaffected?
all this is a bunch of whoee what gme needs is a good quarter and that would put the stock back into a trend that was not down. Until then these experts like idiot Guy whats his name will continue to short it down to 17.
According to the standard model used to price derivatives the stock continues to move according to a stochastic process and on the ex date drops by the dividend amount. But the stock continuous (on the ex date) to move according to a stochastic process and can actually end up or down. The difference given by the Dividends can be observed in the market when looking at Total Return Indices vs Price Indices.
If you think the standard model is wrong then you could backtest your idea and maybe you'll find a stat arb strategy (and could write a nice paper about it and win the nobel price ??). Could be that you find some tradable behaviour trading strategy.
Honestly i doubt there is arb strategy hidden. You'll find any example looking back. Moreover when the taxing enviroment changes this has a huge impact on how companies give back some value to their investor (buyback, dividends, return of equity etc). But this is a different topic.
So you're basically saying that if GME announced a $2 dividend the stock would do nothing right now, and then drop by $2 at the ex-dividend date? No, the stock would rise at the announcement and in the weeks leading up to the payout. Take BP for example, in 1987 they were $17, they've paid out over $33 in dividends since then, and yet the stock is $52 now.
Pulling something at random,
Magic Software Enterprises Ltd. (MGIC, MGIC.TV) said it would issue its first dividend in years next month, a 50-cent-a-share payout.
The news recently pushed the Israel software developer's MGIC shares up 18% to $2.21. The stock has risen by 70% so far in 2009.
The technology industry overall has strengthened as the calendar year nears its close, with demand increasing across a number of segments.
The company said it wasn't establishing a policy about future dividends. This one, expected to cost the company about $16 million total, will be paid Jan. 25 to holders of record by Jan. 11. It will be paid on shares traded both on the Nasdaq and the Tel Aviv stock market.
Even the Motley Fool wise azzzzzss know this:
"One of the important dates in a dividend cycle is the "ex-dividend" date (often abbreviated "ex-div"). According to the IRS, this is the date upon which a new buyer of a stock will not receive a dividend payment. On that day, the money no longer belongs to the company, and new shareholders cannot get it, so the exchanges artificially lower the stock price by the amount of the dividend to reflect the price available to new purchasers."
The core problem is that the company is still unable to convince investors that earnings will grow indefinitely. The major concerns being digital taking marketshare, and store saturation. Until then, why should new long term investors consider this? Sure the P/E is cheap, but if earnings go into decline then you'll be praying for a P/E this high.
To answer a couple of your points, Game Crazy is closing another couple hundred stores or something? Not sure what competition they were, apparently not much since they're closing, but compared to GME's 6,000 stores that's not much.
Regarding the used game kiosks, again it was a dead business which is why it's closed down. I checked my local BBY frequently for six months and the total inventory never got above 20 or so units, all platforms combined. The presence of those units didn't affect GME last year and their absence won't affect GME this year.
A dividend would have cushioned the risk somewhat for investors. A buyback is usually self-serving for management to sell into or dilute into with their own handouts.
So long as this is a trade, and not an investment, the P/E will never go very high because existing long term investors will use rallies to sell into. That will only leave weak handed traders, and buybacks won't be any protection then.
Jester: GME's model right now is a cash COW. Any future promise would be based on how well they milk it and prepare for the future, you are correct. This is Business 101 day 1 stuff. They've earmarked $100 million for acquistion, GameFly or DLC technology who knows, this year and probably the same or more next year. The opening 400 new stores model every year might wind down at some point, probably rightly so. The DLC threat is at least 5 years away and the company is FLUSHED with cash due to its present busines model. At $700 million of cash generation per year, that's $3.5 billion before any threat maybe. The opportunity for new\revised business model to be funded internally is enormous.
Sorry Lionel, it has been unfair, but the question is whether in the next month or two we will be up from here or down. I think up!
Another positive to the list:
Europe is an opportunity, GME has been investing in its used business infrastructure and "teaching" customers its advantages. The investment should begin to pay off this year, perhaps in a big way in by the 4th quarter. More upside . . .