14 Reasons to Invest in GameStop - GME
GameStop’s share price has been fairly stable the past few months. Which is strange because there’s been some great developments with the company. We think the share price could go a lot higher.
Here are 14 reasons why GameStop’s share price might be headed to the Moon again.
1. Quantitative investment firms like Renaissance Technologies and Millennium Management reported new or increased positions as of August 2020. These are firms that specialize in algorithms, machine learning, and the deep understanding of complex data interactions. They don’t invest for no reason. It’s impossible to know what they see in the stock, but if you follow Renaissance’s plays, you know they’re often way ahead of huge jumps or short squeezes.
2. GameStop has eliminated most of their long-term debt. This has gone from a peak of 820M in late 2019, to a paltry 47.5 million as of July 31st, 2021. Lowering debt means they’ll save on interest payments. Less payments means less stress which allows management to focus on generating cashflow. Also worth mentioning, this 47.5M of debt is low interest. (It’s a pandemic response loan from the French government.)
3. GameStop has about 1.4 billion dollars of cash in their bank account. They acquired this by issuing stock during large price rallies. (This was a great move.) Since they don’t need to raise any more capital for operating expenses, investors don’t need to worry about waking up to any large drops due to equity raises. This means peace of mind, which makes it easier for risk-adverse people to invest in the company.
4. The company is only losing about 61M/quarter. That’s peanuts. This low level of cash burn means they can operate for almost six years without worrying about money. Six years is plenty of time to turn the company around. Especially in the age of tech.
5. GameStop is expanding into the NFT space. Digital art is a growing business. The costs are low, and the margins are high. Considering that a lot of shelf space in their retail stores is given to toys and memorabilia, this is a natural move for them.
6. A recent push by GME shareholders has many investors using Computershare to directly register their stock. If you buy your share through a broker, the stock is registered in your broker’s name. If you transfer your shares to Computershare, the stock will be registered in YOUR name. This allows an investor to control the lending of their shares. If less shares are available to be borrowed and sold short, this will lessen the downward pressure on the stock, allowing it to drift upwards naturally. (As all good companies do in the absence of stock manipulation.)
7. Last April, GameStop announced that Ryan Cohen would be joining the board of directors as chairman. Mr. Cohen has extensive experience building an ecommerce business (Chewy), which is where GameStop is pivoting to.
8. While revenue had been dropping for a few years, it seems to have found a floor. This is great because any new initiatives have the chance to significantly impact the revenue. Wall Street loves revenue, especially from tech companies. When future revenue possibilities can be predicted using discounted cashflow analysis, stocks tend to get higher PE ratios. Especially when margins are high. (NFTs anybody?)
9. Q2 2021 sales were 1.183 billion vs 942 million in Q1. This is great because it demonstrates momentum. Sales are growing vs slowing down. Customers are like social media followers. More customers leads to more customers. Especially when the buying experience is great.
10. GameStop sales went up in Q2 despite a 9% reduction in retail stores across the globe due to the pandemic. This is good growth. It means the shift to e-commerce is unfolding exactly as they hoped.
11. GameStop recently leased a 530,000 square foot fulfilment center in Reno, Nevada. Amazon’s fulfilment centers are usually about 1 million square feet. But Amazon sells everything. So, this GameStop warehouse is humongous given their smaller catalogue. This is very bullish as warehouse/office space is cheap right now and tech companies are snapping it up. Once the pandemic is over, rents might go back up, maybe even higher than before due to inflation. This is the prefect time to be signing long-term leases (if you have the cash to support it, which GameStop does.)
12. They also signed a lease for a new customer care support center in Florida. GameStop is obviously not a company that’s going bankrupt. They’re showing all the signs of young tech company. GameStop reminds me of a baby phoenix, rising from the ashes. Fresh claws and a sharp look in its eyes. They’re ready to take on the world.
13. Speaking of fulfilment centers, GameStop’s new 700,000 square foot spot in York, Pennsylvania, began shipping orders in Q1 2021. Now they have both coasts covered and lots of warehouse space for expansion. Remember how Amazon started out with just books? One day they might be saying, “Remember how GameStop started out with just video games?”
14. GameStop has been hiring like crazy. And not just retail associates. They’re hiring the people you need for growth. People with experience in experience in e-commerce, UI, UX, operations, and supply chains. Data scientists. Systems analysts. You name it, they want it. Check out this corporate careers page. It looks like the jobs section a 100-billion-dollar pharmaceutical company. An endless stream of opportunities that are both literally and figurative, all over the map.
In summary, GameStop shares appear to be headed higher, and they don’t need a giant short squeeze to make it happen.
GameStop is transforming into a trendy tech company. They’ve got the people, the investors, and the customers. Now all that’s needed is time.
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(Disclaimer: This post does not constitute financial advice.)
