Is GameStop Stock a Buy After NFT Debut?
Specialty retailer GameStop Corp. (GME) is a provider of gaming and entertainment products that operates through its various stores and e-commerce properties. The company sells new and used gaming platforms, accessories, new and used gaming software and in-game digital currency.
July 11, GME announced the launch of its non-fungible token (NFT) marketplace to enable players, creators, collectors and other community members to buy, sell and trade NFTs. The non-custodial, Ethereum Layer 2-based marketplace is expected to expand functionally over time.
The stock has fallen 39.6% in the past year and 16.6% so far this year to end its last trade at $30.94. It has fallen 10.2% in the last five days.
Here are the factors that could affect GME’s performance in the short term:
Dismal economic growth
For the fiscal first quarter ended April 30, GME’s net sales rose 8% year-over-year to $1.38 billion. However, gross profit fell 9.6% from the previous quarter to $298.50 million. Adjusted net loss and adjusted loss per share rose 437.1% and 362.2% from the same period last year to $157.90 million and $2.08.
Extended valuations
In terms of its forward EV/Sales, GME trades at 1.39x, 21.5% higher than the industry average of 1.14x. The stock’s forward price/sales multiple of 1.45 is 59.1% higher than the industry average of 0.91.
Negative profit margins
GME’s trailing 12-month gross profit margin of 21.53% is 41% lower than the industry average of 36.49%. Its trailing 12-month net income margin and delivered FCF margin of negative 7.73% and 9.37% are significantly lower than their respective industry averages of 5.99% and 2.04%.
The stock’s trailing 12-month ROE, ROTC and ROA of negative 40.55%, 14.31% and 15.11% compared to industry averages of 15.38%, 6.91% and 5.23%.
Unfavorable growth expectations on the bottom line
Consensus EPS estimates of negative $0.38 and $0.37 for the quarters ending July and October 2022 indicate 100% and 5.7% year-over-year declines. Also, GME has missed consensus EPS estimates in each of the last four quarters. EPS is expected to decline 48.2% per year over the next five years.
POWR ratings reflect a bleak outlook
GMEs POWR Ratings reflects this bleak outlook. The share has an overall F rating, which corresponds to a strong sell in our proprietary rating system. The POWR ratings are calculated by considering 118 different factors, with each factor weighted optimally.
GME has a growth rate of F in sync with its dismal bottom line growth in the last reported quarter.
The stock has an F grade for value and sentiment, consistent with its high valuations and bleak bottom line growth expectations.
In the 46 warehouse Special dealers industry, it is ranked last.
click here to see the additional GME (momentum, stability and quality) POWR ratings.
See all the top stocks in the specialty retailer industry here.
The bottom line
GME focuses on strengthening its position in the NFT area. But last week it was reported that GME’s NFT marketplace daily revenues fell below $4,000. This may be an indication that interest in the platform has been waning since its debut in mid-July. On top of that, GME’s dismal bottom line is worrying. Therefore, I think that the stock is best avoided now.
How does GameStop Corp. stack up? (GME) against their peers?
While GME has an overall POWR rating of F, one might consider looking at its industry peers, TravelCenters of America Inc. (TOE) and Murphy USA Inc. (MUSE), which has an overall rating of A (Strong Buy), and Aeon Co., Ltd. (AONNY) and The ODP Corporation (ODP), which has an overall B (Buy) rating.
GME shares were trading at $31.53 per share Monday morning, up $0.59 (+1.91%). So far this year, GME has fallen -15.01%, compared to an increase of -14.70% in the benchmark S&P 500 over the same period.
About the Author: Anushka Dutta
Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More…
