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Have you ever had one of those days? Yeah, you've had 'em. I'm having one right now. I cannot believe how wrong my thesis on GameStop (GME) turned out to be. Wrong, wrong, wrong.
I honestly thought things were going to be different today. The video-game retailer would report its holiday sales and I would see a pop in my shares. I would have the opportunity to sell out at a nice price above my cost basis. A cost basis, by the way, that had been severely challenged soon after I opened the position.
You see, I bought GameStop, only to witness the stock plunge after Wal-Mart (WMT) said it was going to get competitive on software price (I mentioned this fact in a previous article).
Then, a couple analysts came out and supported the stock, as I recall. I concurred with such assessment. Looking at the chain's valuation, the potential for the holiday season, and the opportunity for short-covering, I concluded GameStop had a decent chance of bouncing back.
And it did. In fact, those watching the price action this week leading up to this morning's report noticed the upturn in the shares. I wasn't far away from being able to sell out.
It seems so funny to me now. I come to the comp, punch up the quote, and find my screen is bleeding the crimson life fluid of a stock that once looked like a lively beast of capital appreciation. It felt so horrible to take in the haunted, red image of a nearly 16% decline.
According to the following press release, total revenues for the nine-week sales frame ending January 2 saw no growth. Same-store sales were down well over 8%. Guidance for the fourth quarter took a hit.
Great.
Now I can't even claim that the market is overreacting and that the stock should bounce back in a relatively short time period. This makes me not want to add to the trade. Yet, I probably should, right? Considering the valuation, and the potential for short covering, why not improve the cost basis? Problem is, I did buy more shares shortly after they experienced their first bludgeoning. It's currently unclear to me if throwing more money at this situation is a wise move.
I'm not going to do anything this session. I'll have to watch what happens tomorrow, although I can almost predict what is most likely to occur: there will be more selling. Who the heck is going to want to own this company through the weekend?
One thing killing me in particular: Nintendo (NTDOY). It was up over 3% at the time of this writing. Annoys me to see a stock one would think would be down in sympathy with GameStop actually firmly in the green. Looks like there's no sympathy for me on this torturous Thursday...
Disclosure: I own (sadly) GameStop; positions can change without notice.
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Reader Comments (Page 1 of 1)
1-07-2010 @ 4:35PM
e.krabs said...
In all honesty, I didn't think your thesis was that bad. Well, I didn't expect a pop, but I also didn't expect it to bleed so horribly.
And speaking of honesty (and character), it's speaks volumes for you to be willing to step forward and own up to something like this.
Good for you! You may not have made a gain today, but for what it's worth, you did earn some guy's respect over the internet.
1-07-2010 @ 7:21PM
Mary said...
I actually purchased a few shares of Gamestop the same day the walmart news came out. Luckily I was able to get rid of the position for a small profit.
To be honest I don't think this is a good stock. The fundamentals might look pretty good (right now), but when you think about it the gaming industry is not what it used to be. With downloadable content and piracy running rampant I just don't see Gamestop surviving as a company in the long-run.
1-12-2010 @ 2:10AM
JackSprat said...
No offense, you sound like a great guy, but I read your original thesis and thought about replying that your Gamespot theory was fool's gold. I'm not sure why you would think a company in an industry that was starting to sputter would somehow make a nice profit. The first things that go in a recession are the luxuries which includes the best new video game or console. The big winner right now is Sony only because their once outpriced system dropped to an affordable level. People are giving it a try based on name recognition and HDTV benefits.