GameStop wasn’t worth owning more than $ 45 per share, given the company’s fundamentals. Focus list: long position In stock in late January.
Before returning the roller coaster road to about $ 185, it rose to an even higher of $ 347 during the day.
To give the reader a sense of how crazy the stock is overvalued at peak times, we’ll do some calculations and show how the business needs to do to justify the $ 347 stock price. ..
undefined$ 347 “crazy” explained: it means more income than Macy’s
To justify $ 347 per share, the Discounted Cash Flow (DCF) model shows that GameStop needs to do the following:
Profit margin improved to 5.5% (2010-19 10-year average 3.9%, 2008 record high 4.8%)
Increase revenue by 17% with compound interest each year until 2030 ( projection 13% CAGR of the video game industry by 2027)
GameStop’s historical revenue and DCF’s implicit revenue: Scenario 1
For reference, GameStop’s revenue declined compound interest by 3% each year from 2009 to 2019.
Still crazy for $ 185
For the current price outlook, we perform the same analysis to show what the company must do to justify $ 185 per share.
Immediately improved profit margin to 4.8% (highest ever in 2008 compared to 0.7% in 2019) and
Increase revenue by 15% with compound interest each year until 2027 (beyond the projected 13% video game industry CAGR by 2027)
In this scenario, GameStop will generate more than $ 11 billion in revenue in 2027. That’s 19% higher than GameStop’s 2012 record revenue of $ 9.6 billion and Nordstrom’s TTM revenue.
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GameStop’s historical revenue and DCF’s implicit revenue: Scenario 2
Indeed, stock prices can be unreasonable
I’m not saying that fundamentals should be 100% of the investment process. We only aim to add insight into the underlying risks of owning shares at different prices.
We are not saying that you do not make a lot of money trading stocks. You may be. Our aim is to provide some basic perspectives to inform and complement other investment strategies. In other words, if you have 10 good technical ideas, it’s a good idea to overestimate the ones with the best fundamentals and underestimate the ones with the weakest fundamentals.
A better understanding of fundamentals gives investors a better understanding of when to buy and sell and how much risk they take when owning a particular level of stock.
David Trainer is CEO New configurationAn independent equity research firm that uses machine learning and natural language processing to analyze corporate filings and model economic returns. Kyle Guske II and Matt Shuler are investment analysts at New Constructs. There is no reward for writing about a particular stock, style or theme. New Constructs does not perform investment banking functions and does not operate a trading desk. this is,”Save Investors from Meme Stocks: GameStop.. ” Follow us on Twitter@NewConstructs..
Opinion: GameStop’s share price is down 50% from its highs — and it’s still crazy
http://www.marketwatch.com/news/story.asp?guid=%7B21005575-02D4-D4B5-4572-D387125D1061%7D&siteid=rss&rss=1 Opinion: GameStop’s share price is down 50% from its highs — and it’s still crazy