Daddy Don't Buy So Fast

Wayne Newton had his only second hit song with a tune called "Daddy Don't You Walk So Fast"  (His other hit was Danke Schoen. Ok Red Roses For A Blue Lady and Summer Wind were not bad in record sales.  He got his break from Bobby Darin as Danke Schoen was actually written for him and he passed it on to Newton. BUT I DIGRESS.)

Anyway, Jack has been showing some interest in stocks.  He even texted me last night (from his room way upstairs) the recent stats on AAPL iPhone and Mini-iPad sales.  

He has asked me to look into GME Gamestop and BungiE.  (Unfortuantley BungiE is not public).  It was part MSFT, but it has been spun off as an independent private company.

Jack had us into GME in 2009-2010.  We took a small profit from the company after giving back a large gain.  Things were going nice with the video gaming retailer until WalMart started an all out price war December 2010 and heavy discounted consoles and games stressing GME margins for the first half of 2011.

Anyway, because he has shown interest, I thought I would take this opportunity to show him how to value a company.  I also thought some new readers might benefit from the step by step quick glance at the process.  This is the cursory look at a stock to determine if it belongs on a watch list or not.  The actual investment decision takes a bit more effort.

The first thing we do in developing a descriptive and fundamental analysis of any equity is to visit FINVIZ.com.  We find it to be one of the best FREE websites that provides a bundle of key information about a stock.  It also has a great amalgamation of recent news stories to help understand what is being said in the global press.

Once in FINVIZ, got to the search filed at the top and enter the ticker or the name to get the goods on each stock.

GME CHART

 As you can see the snap shot gives a YTD chart showing a 20 day, 50 day, and 200 day average, as well as daily volume indicators.  It is a decent chart and you can use advance charting options if you wish.

If you are unfamiliar with GME, you can scrool down to the company info section and discover:

GameStop Corp. operates as a video game retailer. It sells new and used video game hardware; physical and digital video game software; and accessories and other products that primarily include controllers, memory cards, and other add-ons, as well as strategy guides, magazines, and trading cards. The company also offers personal computer (PC) entertainment and other software across various genres, including sports, action, strategy, adventure/role playing, and simulation, as well as products that relate to the digital category comprising network point cards, prepaid digital and online timecards, and digitally downloadable software. GameStop Corp. sells its products primarily through its GameStop, EB Games, and Micromania stores, as well as through its electronic commerce Websites, including gamestop.com, ebgames.com.au, gamestop.ca, gamestop.it, gamestop.es, gamestop.ie, gamestop.de, and micromania.fr. As of October 26, 2012, its retail network and family of brands included 6, 628 company-operated stores in 17 countries worldwide. In addition, the company publishes Game Informer, a video game magazine in the United States; and operates a Website, gameinformer.com, featuring reviews of new title releases, tips, and secrets about games and news regarding current developments in the electronic game industry. Further, it operates an online video gaming Website kongregate.com; and digital PC distribution platforms, Impulse and Spawn Labs. GameStop Corp. was founded in 1994 and is headquartered in Grapevine, Texas.

Right below the chart is a table with most of the significant ratios and indicators you need to take the of the company.  Let's go over a few we use.

Dividend and Dividend yield is important and GME is showing a 4.18% yield.  The next column shows a cheap current Price to Earning ratio of 10.18.  (Note the number is green, a good indicator.)  It's forward looking P/E is a very cheap 6.97.  Right below that is the Price to Book Value, an important number.  A P/B of 1.07 is attractive.  It basically indicates that the shares are trading near its intrinsic value.  The Price to Free Cash Flow is an impressive 5.84, indicating that the company generates quite a bit of cash after all the bills are paid.  The first negative number we see is the quick ratio, which is a measure of the companies ability to pay its short term debt with accessible assets.  It is determined using this formula:

Quick Ratio = (Current Assets - Inventories) / Current Liabilities. 

I also look at the debt number which for GME all look good.  Then, very important, are the ratios involving the earnings per share growth.  As you can see there is nothing stellar there, in fact the EPS this year is a negative 9.01%.  That can be traced to the negative Sales and earnings number just below.

I also pay a lot of attention to the ROE, Return on Equity which is an indication of the management ability to get rpoftis from the resources at hand.  The higher the number the better.  11.16% is weak in my opinion.

If I were grading this stock, I would definitely put it on a watch list.  Even at a one to one price to book value we don't see a great value at this time.  The age of the current console offerings are bit old.  New platforms are under design and should hit the market in 2014.  That would help the company.  If you have patience, getting in real slow over the next year might be a good game plan.  Enjoy the 4% dividend and some increase in value due to share buybacks, but not traditional growth.  With 80% market share, this is the game to play when it comes to playing games.

Survey Says:  Same old Same old for another 4 years.