I reviewed the GameStop (GME) earnings report and this story from GameSpot.
As you know, the company has been transitioning toward non-physical gaming businesses. The newer businesses are growing rapidly and increasing total gross margins, while the physical gaming business continues to decline.
A small percentage of gaming stores are being closed, while new stores that support the newer businesses are being opened.
Quarterly profits came in above expectations, and the company continues to repurchase large amounts of shares. I’m sure GameStop is buying back stock at today’s price.
The most significant thing that I read in the report is that the company will no longer give the market advance guidance on quarterly earnings expectations in order to lessen quarterly volatility. The company will give full-year earnings guidance, which is fine with me, because that’s the number I focus on.
GME is not another Valeant Pharmaceuticals (VRX) or Enron—companies that were destroyed by scandals. It’s stunning that there seems to be nothing unusual in the earnings reports, yet traders keep trashing the stock.
GME is an undervalued stock with a large dividend and an active CEO who’s making aggressive and successful changes to move the company into the future.
At this point, the dividend yield is 7.2%, and there’s no risk to the dividend; indeed, the dividend was increased again in February.
There is far more good than bad happening at GameStop, and we’re getting paid a hefty dividend to wait patiently for future capital appreciation.
The stock has traded down near its November lows today, and will likely rebound toward the mid-20s this month. I am going to hold the stock. Hold.