Wednesday, February 10, 2016

Watch List: GameStop

Good morning,

I hope everyone is doing well. Today I'd like to review a smaller company than usual to start a mix up of the monsters that are currently in the Cookie Jar portfolio. That being said, I've chosen an up and coming dividend contender to review for the watch list. Let's review GameStop.

What is GameStop?

If you live in the United States, you have undoubtedly seen one of their stores in a shopping mall or retail center. GME is a retailer of new and used video games for consoles, personal computers, and handheld devices. In addition to their brick and mortar store fronts, they also operate online and manage the Game Informer magazine that specializes in information on new and old games for game lovers everywhere.

Historical Information

GME historically has been a very highly valued stock. Over the past five years, they've averaged 9.10% EPS growth. In addition, they've boasted an average revenue growth of 0.48%. Although these numbers are quite a bit lower than a lot of other stocks out there, they still show that they are consistently in the green rather than being in the swampy muck that other companies all too often sink in. Unfortunately, GME has been and will continue to be affected by the value the market on video games. Some years, video games are in high demand and then in others, they've fallen far short and failed to meet the continually higher expectations of the market. They are also in competition with the older generation of gamer lovers who have transitioned to PC gaming because they can simply download games and many times they can be obtained online at a much lower price and at a higher grade of graphics than typical console gaming can offer. This is reflected in GME's sheets. Their cash flow changes wildly from year to year but remains positive overall. Their income statement has not been as effected but it by no means is on an upward trend. This has undoubtedly influenced the view from the market as the stock stalled out and has since crashed on a downward trend in recent months.

GME as it stands now

GameStop as it stands now is still a good company even though its stock has plummeted. It currently trades at $27.14/share which is a little higher than it has been in the last few weeks. It appears to have leveled off and started on an upward trend once more. This may be influenced by the fact that GameStop has started to make a mark as a dividend payer. They have now raised their dividend for the past four years and currently yield a 5.37% dividend payout. This equates to $1.44 annually per share. Their EPS is 3.67 and their P/E ratio is 7.60x which is a little lower than I'd like to see but still half decent. In addition, their 52 week range is $24.33-47.83/share so it would appear to be at a very nicely discounted rate.

To watch or not to watch

This is a tricky question to answer. The stock as a whole is a pretty good value even though their income appears to have stalled out at a ceiling It's definitely discounted and they are proving themselves as a good base for dividend payouts to rely on in the future. Although four years of raises may seem very small, a company has to start somewhere and I think that this may be a pretty good bet since their payout ratio is still only at 38.6% which gives room for further raises. For these reasons, I'm going to add GME as a hold in my watch list. Only time will tell if the timing works out to add them to the Cookie Jar portfolio. I'll be keeping my eye on the stock and we'll see.

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