Value Investing GME: Undervalued? |
- GME: Undervalued?
- Surge AI thinks Twitter shares are about to rise.
- The Antitrust Hearing, The Role of Congress, and CEO Questions
| Posted: 29 Jul 2020 08:28 PM PDT This is my first analysis on a company. I wrote this analysis for myself to understand GME after reading that Michael Burry has a large share in GME. I have no ownership in the company yet, and do not have any formal training. I would love to hear everyone's feedback and thoughts, as well as advice for what I could do better, mistakes in reasoning as well as any constructive comments/criticism. Thanks in advance! Fundamental analysis of GME Premise: GME is fundamentally undervalued (at least for the short term) and will reflect it's true market value upon release of the next generation of xbox and playstation consoles. Argument 1: Stock price is cyclical, tied to the release of new games/consoles. Xbox has released consoles in 2002, 2013, and 2017, and upcoming in Q4 2020. Playstation has released consoles in 1994, 2000, 2006, 2013 and PS5 in Q4 2020. Both companies have released variations of the current brand in between time periods. GME stock value has generally reflected sales during these times. The performance of GME in 2017 onwards is due to - 64.2% revenue over the past 5 years as a result of no new consoles and a trend towards digital games. Argument 2: Pricing of the stock is below market value which was determined by: (Assets - Liabilities)/(outstanding shares) gives us $9.44 a share. Yet GME is currently marked at 4.50 a share. Explaining the low pricing: GME is currently being priced as if it is headed toward bankruptcy, rather than its intrinsic value. Market sentiment is that brick and mortar has been hammered by the online industry (amazon, ebay etc). The high expectations of of online retail over brick and mortar has caused people to shift resources and attention towards online retail and technology which has resulted in the following: 1) An overvaluation of technological/online companies. For example Intrinsic value of Amazon (based on free cash flow) is 33% lower than it's current share price. The higher pricing is due to the promise of amazon as an online retailer but amazon unperformed brick and mortar by a large margin for the past decade. 2) an undervaluation of brick and mortar stores (amazon is currently generating $2 billion in profit, and has had many unprofitable years in the past decade, while walmart has profited $129 billion) in 2019 alone. 3) Pessimism reflected by the market due to covid 19, where the expectation is that brick and mortar will be hit hardest and online will thrive, but over 2/3 of stores were able to continue operating albeit with modified procedures (curbside pickup, online orders). Additionally GME online sales have spiked 1500% during covid. 4) Low emphasis on stockholders. In the past GME has not put tremendous emphasis on delivering shareholder value. However in recent months Hestia Capital and Permit Capital, both significant investors in GME with 7.3% holding have recently won 2 board seat nominations for Paul Evans and Curtis Wolf, who have promised to redirect efforts towards shareholder value by changing the companies focus on long term performance and by extension unlocking shareholder value. Strategies by management include: reducing costs, shift towards a long term strategy and alignment of compensation with performance, a historically neglected aspect resulting in investor frustration. I don't think this is significant, but it is worth noting that management does see value in the company, albeit in the face of significant structural changes. Arguments against: 1) Can GME survive until the December release of consoles? - yes, they have $500 million in liquidity, and a yearly operating cost of 2 billion, ample to support the store until console releases. 2) will the market reflect GMEs value once sales are up? Unknown. I'm not certain of this. 3) What advantage does GME offer over walmart and Bestbuy for sales of consoles? Unknown, GME may have higher pricing than its competitors and a wider assortment of games and accessories. I don't find this convincing however. See #4 4) Underperformance of console sales. There is the potential for consoles to flop, but i don't think this is viable given the improvements in technology, how long it has been since a new console was released, increasing work from home/stay at home population due to the pandemic and affordable pricing. Additionally - covid has spiked GME online sales by 1500%, which is a positive sign for the retailers potential. Historically, consoles have sold out upon pre-orders becoming available, i think this trend will continue into the next generation of systems. 5) The move to digital: Digital relies on heavy internet speeds and storage, both practically unavailable right now. Conclusion: GME is currently under-priced due to a combination of low confidence in management, the expectation that online will take over brick and mortar, historically unfavorable treatment towards shareholders and future expectations of bankruptcy. However intrinsic value of the company is over twice it's current pricing. The company has enough liquidity to support themselves through the console cycle and bankruptcy fears are unjustified. The company's change in management along with upcoming console release gives the potential for GME to return to its intrinsic value, generate profits and return to a fair market value. I plan to buy GME and hold for up to a year, either until the stock yields a profit or until the end of the console cycle. [link] [comments]  |
| Surge AI thinks Twitter shares are about to rise. Posted: 30 Jul 2020 02:57 AM PDT Based on articles surrounding the upcoming Facebook's earning report, Surge AI is predicting that TWTR shares are about to rise in value. https://surgenews.co/chart.html?sym=TWTR [link] [comments]  |
| The Antitrust Hearing, The Role of Congress, and CEO Questions Posted: 29 Jul 2020 06:48 AM PDT |
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