GameStop Corp (GME, Financial) has experienced a daily loss of -3.66%, and a 3-month loss of -24.56%, with a reported Loss Per Share of 0.33. The question that arises is: Is the stock significantly undervalued? This article aims to answer this question by providing a thorough valuation analysis of GameStop. We invite you to delve into this insightful exploration of GameStop's intrinsic value.
Company Overview
GameStop Corp is a U.S. multichannel video game, consumer electronics, and services retailer. Operating across Europe, Canada, Australia, and the United States, GameStop sells new and second-hand video game hardware, physical and digital video game software, and video game accessories. The company's operations are primarily through GameStop, EB Games, and Micromania stores and international e-commerce sites. With two main business segments: Video game brands and Technology brands, GameStop has established a significant presence in the industry.
Despite a market cap of $5.20 billion and sales of $5.80 billion, GameStop's stock price of $17.06 per share appears to be significantly undervalued when compared to the GF Value of $25.07, an estimation of its fair value.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors:
1. Historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at.
2. GuruFocus adjustment factor based on the company's past returns and growth.
3. Future estimates of the business performance.
Our analysis reveals that GameStop's stock appears to be significantly undervalued. The GF Value Line suggests that the stock's fair value is higher than its current price of $17.06 per share. Given that GameStop's market cap is $5.20 billion, the stock seems to be significantly undervalued. Consequently, the long-term return of GameStop's stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to review a company's financial strength before deciding whether to buy its shares. GameStop has a cash-to-debt ratio of 1.88, which ranks better than 75.11% of 1101 companies in the Retail - Cyclical industry. GuruFocus ranks GameStop's financial strength as 7 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. GameStop has been profitable 5 over the past 10 years. Over the past twelve months, the company had a revenue of $5.80 billion and Loss Per Share of $0.33. Its operating margin is -2.15%, which ranks worse than 77.07% of 1099 companies in the Retail - Cyclical industry. Overall, the profitability of GameStop is ranked 6 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth rate of GameStop is 1.8%, which ranks worse than 55.54% of 1046 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 2.1%, which ranks worse than 63.29% of 899 companies in the Retail - Cyclical industry.
ROIC vs WACC
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. During the past 12 months, GameStop's ROIC is -11.81 while its WACC came in at -3.96.
Conclusion
In conclusion, the stock of GameStop appears to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks worse than 63.29% of 899 companies in the Retail - Cyclical industry. To learn more about GameStop stock, you can check out its 30-Year Financials here.
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