GME - GameStop: Approaching An Optimistic Fair Value But Not There Yet
2024-04-28 04:06:41 ET
Summary
- I would steer clear of the GameStop stock – in every sense – both long and short.
- The fact that I have to mention this is a consequence for all serious market participants and potentially shows the damage to market transparency and efficiency to this day.
- GameStop does have some value, but it still lies well below its current share price. "Healthy shrinkage" leads back to profitability.
- Current valuation implies reduced contraction whilst significantly expanding margins.
- I have already covered other representatives of the gaming industry, including Nintendo and Take-Two Interactive.
A Three-Year Long Ride Down Towards Fair Value
At about 15 USD a share two months ago, my attention was drawn back to GameStop (GME) three years after its dramatic showdown between retail traders and hedge funds, which led to its erratic price movements. I suggested that in a highly optimistic scenario, the downside could at least drop to 10 USD, a level we have already witnessed. Now, given GME's latest quarterly results, I conducted a more in-depth analysis of its current fair value. These are the key points of my thesis:
- I argue that although GME has already traversed the majority of its remarkably extended journey down from excessive peaks toward fair value, it still hasn't reached its destination.
- The business model simply continues to offer little in terms of attractiveness.
- I compare the macroeconomic, monetary, and fiscal landscape during the height of the excesses with how fundamentally different it appears today.
- Most importantly, I conduct a simplified yet fundamentally-based valuation for GME, based on the most recent numbers.