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Ahh, GameStop. Reddit's favorite meme stock. I owned 2 shares when its price when meteoric to over $400/share. Reddit and Twitter went crazy, especially after the major brokerages, including Robinhood, banned buying (but not selling) of GameStop shares. In fact, this decision is one that plagues Robinhood today, and contributes to why investors have a very low trust rating for the platform.
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But, memes aside, GameStop is an actual brick-and-mortar store. It's nostalgic for many people, especially gamers, who bought their first video game at one of these stores. However, with the advent of e-commerce, fewer and fewer people are actually going to these brick-and-mortar stores. Which begs the question... is GameStop a decent investment (fundamentally)?
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To answer what is GameStop, I'll have Aurora, the AI-Finance assistant answer this question for me.
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Her full response is as follows:
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GameStop Corp. is a retail company primarily known for selling video games, consoles, and gaming accessories. Its business has traditionally been centered around physical retail locations where customers can purchase new and pre-owned video games, hardware, and accessories. Over the years, GameStop has become a well-known name in the gaming community, offering a variety of products including new game titles, pre-owned games, consoles from major manufacturers (such as Sony's PlayStation, Microsoft's Xbox, and Nintendo's Switch), and a wide range of gaming accessories like controllers, headsets, and other peripherals.
In addition to physical products, GameStop also sells digital video game downloads, DLC (downloadable content), and virtual currency. The company has been working on expanding its digital offerings to adapt to the evolving gaming industry, where digital sales have been increasingly gaining ground over physical copies.
GameStop also operates a buy-sell-trade program that allows customers to trade in their used video games, consoles, and accessories for store credit or cash, providing an affordable option for gamers to access new and pre-owned games and equipment.
Over recent years, GameStop has been undergoing a significant transformation aimed at revitalizing its business model and financial performance. This effort includes improving the in-store experience, enhancing the e-commerce platform, expanding the product offerings beyond traditional gaming to include more electronics and collectibles, and exploring opportunities in the digital assets and blockchain space.
The company gained significant attention in early 2021 during the "meme stock" phenomenon, where its stock price saw dramatic fluctuations driven by retail investors and social media platforms. This event brought GameStop into the global spotlight and highlighted the changing landscape of retail investing.
As of my last update, GameStop is working towards pivoting its business model to adapt to the rapidly changing retail and gaming environments, aiming to leverage its brand and extensive store network to capture new growth opportunities in the digital and e-commerce spaces.
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Aurora knows a great deal about GameStop. She mentioned that they are attempting to re-vitalize their financials with investments in e-commerce and blockchain. The real question is, are they doing a good job?
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Analyzing GameStop fundamentally
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GameStop (GME) Summary:
* Market Cap: $4.55 billion
* PE Ratio: -45.49
* PS Ratio: 0.78
* Net Income: -$3.1 million
* Revenue: $1.08 billion
* Free Cash Flow: $4.8 million
* Net Change in Cash: $1.21 billion
* Earnings Per Share: -$0.01
* EBITDA: -$3.4 million
Pros:
* GameStop has a strong Altman Z-Score of 3.97, indicating good financial health.
* The company has a positive free cash flow, which means it is generating more cash than it is using for operations.
* GameStop has a high Gross Profit Margin of 26.13%, showing efficiency in generating profits from its revenue.
Cons:
* The company has a negative Net Income, which means it is currently not profitable.
* GameStop has a high Debt Ratio of 0.97%, indicating a significant reliance on debt to finance its operations.
* The PE Ratio is negative, suggesting that the company's earnings are not sufficient relative to its stock price.
Summary:
GameStop's financials show mixed performance. While the company has a strong financial health score and positive free cash flow, it is currently not profitable and has a high debt ratio. Investors should be cautious and conduct further research before making investment decisions.
Rating: 3/5 For more detailed information, you can refer to the source provided:
- Source: https://www.sec.gov/Archives/edgar/data/1326380/000132638023000063/0001326380-23-000063-index.htm
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Aurora was able to fetch GameStop's most recent earnings reports and perform a full financial analysis. As we can see from the analysis, GameStop is actually a pretty good investment. She rated GME as 3/5, but this obviously doesn't account for the "memeness" factor.
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GameStop gets major props for having a high gross profit margin. Their revenue is also high, and even though they're not yet profitable, it wouldn't be a surprise if this changed within the next quarter or two. In comparison with other stocks in the market, GME is really not that bad, especially because it is at near two year lows.
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What are some alternatives?
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When looking at a stock, it's always good to look at potential alternatives. After all, stocks don't exist in a vacuum. From Aurora's description, we know GME is an ecommerce and gaming stock. So let's try to find some other ones similar to it.
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Query for other ecommerce or gaming stocks with a market cap between $1 billion and $10 billion. Sort by profit margin descending.
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Here are the summarized financial details for the provided JSON data:
1. **Golden Entertainment (GDEN)**
- Description: Golden Entertainment owns and operates a diversified entertainment platform, focusing on casino, branded taverns, and distributed gaming operations.
- Profit Margin: 93.59%
- Market Cap: $1,135,916,100
- Net Income: $241,216,000
- Revenue: $257,726,000
2. **Carvana Co. (CVNA)**
- Description: Carvana operates an e-commerce platform for buying and selling used cars in the United States.
- Profit Margin: 28.20%
- Market Cap: $5,643,574,860
- Net Income: $782,000,000
- Revenue: $2,773,000,000
3. **Monarch Casino & Resort, Inc. (MCRI)**
- Description: Monarch Casino owns and operates casino resorts in Nevada and Colorado.
- Profit Margin: 18.17%
- Market Cap: $1,357,651,040
- Net Income: $24,163,000
- Revenue: $132,965,000
4. **Olaplex Holdings, Inc. (OLPX)**
- Description: Olaplex develops and sells hair care products. - Profit Margin: 16.48%
- Market Cap: $1,368,635,085
- Net Income: $20,366,000
- Revenue: $123,555,000
// continues to go on; you get the picture
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When doing this, I actually learned about a new company, Golden Entertainment (GDEN), which has an absolutely insane 94% profit margin and a $1 billion market cap. Thus, I decided to do a more head-to-head comparision of Golden Entertainment (GDEN) vs GameStop (GME).
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Golden Entertainment versus GameStop
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Compare GDEN and GME's Q3 2023 earnings
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Stock 1 (GDEN):
* Market Cap: $915,540,300
* PE Ratio: 18.53
* PS Ratio: 0.81
* Net Income: $241,216,000
* Revenue: $257,726,000
* Free Cash Flow: $157,685,000
* Net Change in Cash: $261,161,000
* Operating Income: $17,875,000
* Total Debt: $734,617,000
* Debt Ratio: 0.48
* Current Ratio: 2.48
Pros:
1. GDEN has a higher revenue and net income compared to GME, indicating stronger financial performance.
2. The company has a healthy current ratio of 2.48, showing good liquidity to cover short-term obligations.
Cons: 1. GDEN has a higher total debt of $734,617,000 compared to GME, which may pose a higher risk in terms of debt management.
2. The PE ratio of 18.53 suggests that the stock may be slightly overvalued based on its earnings.
Stock 2 (GME):
* Market Cap: $4,552,023,000
* PE Ratio: -45.49
* PS Ratio: 0.78
* Net Income: -$3,100,000
* Revenue: $1,078,300,000
* Free Cash Flow: $4,800,000
* Net Change in Cash: $1,209,500,000
* Operating Income: -$14,700,000
* Total Debt: $30,500,000
* Debt Ratio: 0.01
* Current Ratio: 1.65
Pros:
1. GME has a higher net change in cash compared to GDEN, indicating strong cash generation.
2. The company has a very low debt ratio of 0.01, signifying a low level of debt relative to its assets.
Cons:
1. GME reported a negative net income of -$3,100,000, which raises concerns about profitability.
2. The operating income of -$14,700,000 suggests that the company is not generating profits from its core operations.
Summary:
In comparing GDEN and GME's Q3 2023 earnings, GDEN outperforms GME in terms of revenue, net income, and liquidity. GDEN has a higher market cap, revenue, and net income, indicating better financial health. However, GME shows a lower debt ratio and higher cash generation. GDEN's higher debt and slightly overvalued stock based on PE ratio are areas of concern. GME's negative net income and operating losses highlight challenges in profitability. Both companies have a similar Piotroski F-Score of 6, indicating average financial health.
Rating:
GDEN: 4/5
GME: 3/5
Remember, this analysis is a starting point, and it's essential to conduct further research before making any investment decisions.
For more detailed information, you can refer to the sources provided:
- GDEN Financial Statement
- GME Financial Statement
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While GDEN and GME are similar in many regards, it's important to note that they are still operating in different industries. GameStop is a video game and e-commerce company, while Golden Entertainment is more of a gaming (as in casinos) and hospitality industry. Nevertheless, the companies boast similar market caps and financial metrics, showing you what another similar-valued company may look like.
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Honestly, GameStop is still a decent investment. They don't have the profit margins of Google or Microsoft, but they're also valued at a tiny fraction of these companies. And they're stable; they're not declaring bankruptcy any time soon and have a lot of room to turn their business around.
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And, it's true that there are other companies in the same industry as GameStop that might be safer investments. But at the same time, none of the companies are GameStop. With this analysis, I've shown that it may not be a huge waste of money to buy yourself a few shares. Who knows? If GME starts rocketing back to $400, you will be kicking yourself for missing out.
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Disclaimer: The content provided in this post is for informational purposes only and is not intended as financial advice or a recommendation to buy or sell any securities. I am not a financial advisor. The insights and analysis shared are meant to demonstrate the capabilities of NexusTrade in automating financial research. It's important to conduct your own due diligence and consult with a professional advisor before making any investment decisions.
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