LVMUY - This Is Why Ryan Cohen Should Short GameStop Stock (if It Were Legal)
2024-06-16 08:54:04 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Thanks to the insanity of retail investors, GameStop (NYSE: GME ) has raised $3 billion in GameStop stock over the past few weeks. It will probably be invested in other companies.
Whether any of this makes any sense or not, the company’s news release from June 11 confirmed that it generated $2.14 billion in gross proceeds from the latest at-the-market offering, selling 75 million shares at an average price of $28.49.
Previously, GameStop sold 45 million shares on May 24 at an average price of $20.74 for gross proceeds of $933.4 million . Based on an average 2% commission for ATMs and another 1% in expenses, GameStop’s net proceeds to be invested are around $2.98 billion.
I find it amazing that people will moan and groan about higher prices and interest rates and then go out and buy this awful, awful stock. Oh, well, you can’t legislate against stupidity.
I doubt Ryan Cohen is reading this, but if he is, here’s why he should short GameStop stock. In addition, I’ve got two companies he should buy if he’s serious about becoming a portfolio manager.
Shorting GameStop Stock
I don’t believe it’s legal for a CEO and their board to short their own stock. At least, not in the U.S., but if it were, Ryan Cohen would be wise to do so.
For all the bulls out there who floated GameStop stock $3 billion at inflated prices, you must see the writing on the wall. This tired video game retailer, whose plan by its savior to go digital, has gone nowhere fast.
Only job cuts, as I suggested in my last piece about GME, have done anything to improve its financial condition.
As a result, the board has capitulated with Cohen, approving his role of portfolio manager in March, to be overseen by two independent directors.
Given GME finished Q1 2024 with $1.08 billion in cash, Cohen will have more than $4 billion to put to work in the GameStop investment portfolio.
It won’t be in Berkshire Hathaway’s (NYSE: BRK.B ) league but it will be a decently-sized equity portfolio nonetheless.
Investors have trusted Cohen to make changes to GameStop’s business since he first invested in the company in August 2020 , becoming the “official” CEO last September.
We’re coming up on four years of his involvement with no improvements to the business or its business strategy.
And now, investors believe he can pick stocks like Warren Buffett? Hardly.
Invest in the Best
I have no doubt that Ryan Cohen is a bright fellow. He was wise enough to sell Chewy (NYSE: CHWY ) for $3.35 billion while the business was on an upward trajectory.
In the five years since Chewy went public on June 13, 2019, its share price has gained 6%, a compound annual growth rate of 1.1%.
So, he knows when to sell, but does he know when to buy? Some would argue that starting Chewy at the beginning of the long-term secular trend for pet products was a prescient choice.
I do concede that. However, investing in stocks requires a different set of skills from entrepreneurship.
Which is why Cohen would be wise to put a lion’s share of GME’s cash into Berkshire.
Assuming he dropped the entire $4 billion into BRK.B, GameStop would be the 15th-largest owner of Class B shares, ahead of Legal & General Group (OTCMKTS: LGGNY ) and behind Norges Bank , Norway’s central bank , and manager of the Government Pension Fund Global.
That’s a big deal. And they kind of know what they’re doing in Omaha.
Luxury Will Always Survive and Mostly Thrive
Bernard Arnault is the second-wealthiest person on the planet according to the Bloomberg Billionaires Index at $206 billion . Down $1.14 billion in 2024, the luxury market has taken a breather.
However, if Cohen had been in a position to invest $4 billion in LVMH (OTCMKTS: LVMUY ) at the beginning of 2014, GME would have $17.3 billion to invest, a compound annual growth rate of nearly 16%.
The 75-year-old has moved in recent years to ensure there is an orderly succession at the family business. In 2022, LVMH raised the retirement age for its CEO by five years to 80.
He’s now got five additional years to position the chess pieces that are his five children who run various businesses under LVMH’s umbrella.
On June 6, Arnault promoted his second-youngest child, Frédéric, to be Managing Director of Financière Agache, the Arnault’s family holding company.
The holding company has 48% of the equity and 64% of the voting rights in LVMH. Frédéric joined the LVMH board in April.
In Q1 2024, LVMH had revenue of 20.69 billion euros ($22.22 billion), 2% lower year-over-year on a reported basis, but 3% higher, excluding acquisitions and currency. In 2023, its revenue was 86.2 billion ($92.58 billion) with an operating profit of 22.8 billion euros ($24.49 billion).
Cohen could do a lot worse than these two hands-off investments.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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