Game Star Corporation is a manufacturer of video games and also retailer of entertainment software. Our analysis of the entity shall be based on fundamental research of the company’s business where we shall derive important information from the company financial statements along with some help from financial websites like yahoo finance and reuters. Below is the current financials of the company:
- Current Market Price: $ 49.95
- Market Capitalization: 5.83 Billion Shares
- Volume: 818231
- Dividend Yield: 2.20%
- 1 Year Estimated Target Price: $57.52
Before coming on to a conclusion as whether to sell or buy the GameStop Corp stock, we would be looking over the performance of Game Star Corporation’s business because being an investor we are interested in the business of the company.
Analyzing the historical earnings and price trend of GameStop Corp reveals that the stock is undervalued. Our analysis is based upon the historical earnings growth rate of 20.35 and current P/E ratio of 15.57(average). Also the market analyst are expecting the earnings to grow at 15.90%(5 year average). Thus on initial analysis, the stock of GameStop Corp appears to be undervalued.
Below is the graph representing different positions of valuation of GameStop Corp as at 1/29/2013.
GameStop Corp: Historical Earnings, Price, Dividends and Normal P/E Since 2003:
Another way of analyzing an investment, is the amount of capital appreciation and dividend it has paid to its shareholders. Both these components constitutes two components of additional return which a shareholder seeks from his/ her investment.
When presented separately like this, the additional rate of return a dividend paying stock produces for shareholders becomes undeniably evident. The stock analysis of GameStop Corp shows that in addition to 17.1% of capital appreciation, an investor of $1000 in GameStop Corp would earn additional 163.26 as dividends. Thus, this will increase the total return of the shareholders to 17.4% in conjuction with dividend received along with capital appreciation.
Also compared with benchmark return of S&P 500 which offers 7.1% return , the GameStop Corp stock appears a worthy investment.
Comparing Game Stop Corp Stock and a Federal Investment:
Whilst analyzing an investment it is useful to compare it to a low risk federal investment.Thus, comparing an investment in the stock of GameStop Corp to an investment in 10 year treasury bond indicates that expected earnings of former would be 10.4 times more than investment in 10 year T- Bond.Although investment in GameStop Corp will involve more risk but the risk seems to be well compensated for the investors.
GameStop Corp: The Future:
Before coming up with summary, it is really important to learn about the estimated future price of the GameStop Corp Stock. In terms of market evidence, future long terms returns are function of two critical determinants:
- The Growth rate of the company’s earnings
- Price paid by investors to earn those earnings.
“Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound and profitable performance”.- Warren Buffet
Analysts on the basis of expected earnings growth of 9.2%, estimates that the price of GameStop Price would be 57.52 by the next earnings date of November, 2013 while for 208 the price is expected to be in the range of $71.99-$73, thus investors could be sure of atleast 27% annual return from stock including dividends.
Also no long term debt capital, low P/S ratio of .33 and increased dividend to the shareholder makes the stock a lucrative investment.
Current Events in the Company:
Some recent events in the company are also worth consideration as they may also affect our investment decison in the company. Recently during June, 2103 company declared cash dividend of $0.275/common share and also continued their purchase of 1 million shares worth $25.5 millions. The actions were supposed to be in alignment with company’s committment of returning 100% free cash to shareholders.
Moving towards our final conclusion, market analysts are surprised with current growth estimate of GameStop Corp. With 47.40% of growth estimate, the company has even outperformed benchmark growth % of 29% in gaming industry.
Although the current P/E ratio of 15.57 is lower than industry, but the multiple is almost in alliance with S& P 500 where the P/E is 15.75.
Summary: Buy the Stock
The above analysis of fundamentals of GameStop Corp illutrating their past and present valuation based on their financial statement analysis while future forecasts of earnings growth is based on concensus of market analysts.
Our conclusion leads towards Buying the GameStop Corp Stock. The undervaluation estimated through EPS and P/E Ratio along with estimated total return of 17.4% in the form of capital appreciation and dividend makes the GameStop Corp stock a sound investment decision.
Further, some positive trends in the company relating to payout of increased percentage of dividends concretes my conclusion over the recommendation of buying the stock and why a rationale investor would like to invest in GameStop Corp Stock.
Yahoo Finance. GME- Analyst Estimates. 7 October 2013. 8 October 2013 <http://finance.yahoo.com/q/ae?s=GME+Analyst+Estimates>.
Yahoo. GameStop Corp: Fundamental Stock Research Analysis. 31 January 2013. 8 October 2013 <http://my.news.yahoo.com/gamestop-corp-fundamental-stock-research-analysis-201542067.html>.