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This is a tough one. I lost money on GameStop (GME) recently. I'm therefore hesitant to say the stock is a buy. Yet, today's price action might indicate that good things are ahead for the both the company and its equity.
The video-game retailer rallied on the Q4 report (at the time of this writing, shares were 7% higher). Earnings were down: they came in at $1.29 per diluted share, a dime less than what was made in the previous year's similar quarter (this latter period included 5 cents of merger-related income, so take that into account). But expectations were slightly beaten: according to our earnings preview, the call was for $1.28 per share.
Hey, that might not seem like much, but considering how bearish the market became on the company's prospects, it's like a big victory in one sense. Remember when Wal-Mart (WMT) decided to become competitive in the video-game market during the Christmas season? That's when the sellers came out in force and took the stock down. And as I alluded to before, I eventually decided to get out of my GameStop position at much less than what I paid for it.
The market is obviously telling me that I should have held on and that the shares were a value after the drop. Unfortunately, negative elements remain in the GameStop story. Take a look at same-store sales: they contracted 7.9% in the fourth quarter. Plus, the video-game industry as a whole has been having trouble.
Yet, I can't say I don't feel a little better about the company. Guidance suggests that comps will improve in the upcoming fiscal year. Management is buying back stock. And if the sector begins to rebound, then the shares should follow along.
The bottom line for me is this: I'm not ready to buy GameStop again. If it means I miss out on some cool gains, that's fine, nothing I can do about it The stock does appear to be, at least in the short-term, a trade at this point, albeit a risky one. If you absolutely need to expose some of your portfolio to risk, you could try this idea out. Otherwise, search for stronger alternatives.
Disclosure: I don't own any company mentioned; positions can change without notice.
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Reader Comments (Page 1 of 1)
3-19-2010 @ 6:01AM
Dan Barnett said...
Steve,
You can beat yourself up endlessly over the roads not taken, buys not made, sales made too soon or not soon enough, might have beens. I've got a few rules I'd like to share.
The Buy you don't make never hurts you.
You will NEVER time the market exactly.
Things are never as good as they look in a bull market.
Things are never as bad as they look in a bear market.
Stop limits are a GOOD thing.
Any individual stock needs to be compared to the market in general. i.e nothing looked good in 2008 but KO, JNJ, etc. are still good companies.
Every stock has both good news and bad news all the time. Sometimes it's just how you look at the same fact.
Now GME crashed & burned. Have any of the reasons for the crash changed? Is WMT not going to get into the video game market if there's money to be made? The Great Recession is ending, but are video games making a huge comeback? Has anything fundamental changed?
Don't beat yourself over GME. Learn & Move On.
The next round is on me.