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One of the market's most exciting stories over the last several years was the uprising of “meme stocks.” Out of the bunch, GameStop (GME - Free Report) was undoubtedly the most popular, shaking the market violently with a short-squeeze that was the magnitude of which is rarely seen.
No matter which side you were on, we can all agree on one thing – it was a wild time to be an investor. GME shares were trading at around $20 per share at the beginning of January 2021, and after the month was over, shares closed up more than 1500% at around $325 per share.
Needless to say, long-term investors were rewarded handsomely, and it was an absolute paradise for day traders. For short-sellers, it was a nightmare.
GameStop shares remained highly volatile, losing 70% in value the next month and then gaining nearly 90% the month after. Simply put, it was a rollercoaster that many market participants decided to take a ride on. The five-year chart below of GME shares shows just how wild of a ride it truly was.
Image Source: Zacks Investment Research
Today, the meme stock is back in the headlines, and for an important reason – the company plans to perform a 4-for-1 stock split. The company has struggled in the market year-to-date, as have many other “meme stocks.”
The chart below illustrates the year-to-date share performance of GME and a few other “meme stocks,” such as AMC Entertainment (AMC - Free Report) , BlackBerry (BB - Free Report) , and Nokia (NOK - Free Report) .
Image Source: Zacks Investment Research
As we can see, it’s been a rough stretch in the market for all companies, but GameStop shares have displayed a much higher level of defense than the S&P 500 year-to-date, a fascinating development.
However, widening the time frame to encompass a year’s worth of price action paints a different story; all four companies’ shares have performed noticeably worse than the general market, with Nokia being the top performer in this timeframe.
Image Source: Zacks Investment Research
Stock splits have gained traction over the last several years - a trend investors have happily welcomed. Of course, a stock split doesn’t affect a company’s valuation, but it does lower the price tag of each individual share, providing ease for the stock to multiply once again and provide investors with serious gains.
Just today, upon the announcement of GME’s split, shares were up more than 7% in pre-market trading, reflecting the well-received nature of the news. Let’s examine the company closely to see where it stands.
Recent Quarterly Results
GameStop has struggled in its quarterly reports, reporting EPS well below expectations in each of its last four quarters and acquiring an average EPS surprise in the negative of a triple-digit -250%. In its most recent quarterly release, GME missed the Zacks Consensus EPS estimate by more than 50%, undoubtedly a concerning development.
SG&A (selling, general, and administrative expenses) increased 22% in Q1 2022 compared to the year-ago quarter. The company saw an uptick in this area primarily due to costs associated with its transformation into a technology company, and GME expects to continue to incur costs as the company transforms.
Additionally, gross profit decreased nearly 10% during Q1 2022 compared to the year-ago quarter, reflecting increased freight costs driven by supply chain disruptions, incremental inventory reserves, market pressures, and a shift in product mix towards higher dollar lower margin categories.
On a more positive note, the company announced the launch of its digital asset wallet that will allow gamers and others to store, send, receive, and use cryptocurrencies and non-fungible tokens (NFTs) across decentralized apps.
It represents the company’s first splash into blockchain technology and will enable transactions on GameStop’s NFT marketplace when it launches in the second quarter of 2022.
Overall, GameStop is dedicated to strengthening its technology capabilities, which will continue to weigh heavily on margins.
Growth Estimates & Valuation
Earnings estimates have fallen extensively over the last 60 days, with the -$1.53 per share estimate for the upcoming quarter reflecting a triple-digit decrease in earnings of more than 100% compared to the year-ago quarter.
Image Source: Zacks Investment Research
Additionally, the -$5.98 EPS estimate for the current fiscal year represents a 31% decrease in earnings year-over-year.
Image Source: Zacks Investment Research
GME has stretched valuation levels – its 1.4X forward price-to-sales ratio is well above its five-year median value of 0.2X and represents a staggering 273% premium relative to its Zacks Industry. Furthermore, GME has a Style Score of a D for Value.
Image Source: Zacks Investment Research
Bottom Line
While the stock split can undoubtedly breathe new life into GME shares, I think it’s beneficial for investors to heed caution with this stock and look to park their cash elsewhere.
Valuation levels are elevated quite considerably, the earnings picture has softened, shares are incredibly volatile, and the company has incurred heavy expenses within its transformation.
Instead, investors seeking exposure to a stock split with video game exposure should consider Nintendo (NTDOY - Free Report) . The digital entertainment titan is slated to undergo a 10-for-1 split later this year, near the beginning of October.
NTDOY has been on a blazing-hot earnings streak, exceeding EPS estimates in ten consecutive quarters. In its latest quarter, Nintendo easily beat the $0.48 Zacks Consensus EPS Estimate by a sizable 110% and reported quarterly EPS of $1.01.
Additionally, NTDOY shares have been much less volatile and have provided a higher level of defense than both GME and the S&P 500 year-to-date.
Image Source: Zacks Investment Research
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Stock Split Mania; GameStop Joins the Party
One of the market's most exciting stories over the last several years was the uprising of “meme stocks.” Out of the bunch, GameStop (GME - Free Report) was undoubtedly the most popular, shaking the market violently with a short-squeeze that was the magnitude of which is rarely seen.
No matter which side you were on, we can all agree on one thing – it was a wild time to be an investor. GME shares were trading at around $20 per share at the beginning of January 2021, and after the month was over, shares closed up more than 1500% at around $325 per share.
Needless to say, long-term investors were rewarded handsomely, and it was an absolute paradise for day traders. For short-sellers, it was a nightmare.
GameStop shares remained highly volatile, losing 70% in value the next month and then gaining nearly 90% the month after. Simply put, it was a rollercoaster that many market participants decided to take a ride on. The five-year chart below of GME shares shows just how wild of a ride it truly was.
Image Source: Zacks Investment Research
Today, the meme stock is back in the headlines, and for an important reason – the company plans to perform a 4-for-1 stock split. The company has struggled in the market year-to-date, as have many other “meme stocks.”
The chart below illustrates the year-to-date share performance of GME and a few other “meme stocks,” such as AMC Entertainment (AMC - Free Report) , BlackBerry (BB - Free Report) , and Nokia (NOK - Free Report) .
Image Source: Zacks Investment Research
As we can see, it’s been a rough stretch in the market for all companies, but GameStop shares have displayed a much higher level of defense than the S&P 500 year-to-date, a fascinating development.
However, widening the time frame to encompass a year’s worth of price action paints a different story; all four companies’ shares have performed noticeably worse than the general market, with Nokia being the top performer in this timeframe.
Image Source: Zacks Investment Research
Stock splits have gained traction over the last several years - a trend investors have happily welcomed. Of course, a stock split doesn’t affect a company’s valuation, but it does lower the price tag of each individual share, providing ease for the stock to multiply once again and provide investors with serious gains.
Just today, upon the announcement of GME’s split, shares were up more than 7% in pre-market trading, reflecting the well-received nature of the news. Let’s examine the company closely to see where it stands.
Recent Quarterly Results
GameStop has struggled in its quarterly reports, reporting EPS well below expectations in each of its last four quarters and acquiring an average EPS surprise in the negative of a triple-digit -250%. In its most recent quarterly release, GME missed the Zacks Consensus EPS estimate by more than 50%, undoubtedly a concerning development.
SG&A (selling, general, and administrative expenses) increased 22% in Q1 2022 compared to the year-ago quarter. The company saw an uptick in this area primarily due to costs associated with its transformation into a technology company, and GME expects to continue to incur costs as the company transforms.
Additionally, gross profit decreased nearly 10% during Q1 2022 compared to the year-ago quarter, reflecting increased freight costs driven by supply chain disruptions, incremental inventory reserves, market pressures, and a shift in product mix towards higher dollar lower margin categories.
On a more positive note, the company announced the launch of its digital asset wallet that will allow gamers and others to store, send, receive, and use cryptocurrencies and non-fungible tokens (NFTs) across decentralized apps.
It represents the company’s first splash into blockchain technology and will enable transactions on GameStop’s NFT marketplace when it launches in the second quarter of 2022.
Overall, GameStop is dedicated to strengthening its technology capabilities, which will continue to weigh heavily on margins.
Growth Estimates & Valuation
Earnings estimates have fallen extensively over the last 60 days, with the -$1.53 per share estimate for the upcoming quarter reflecting a triple-digit decrease in earnings of more than 100% compared to the year-ago quarter.
Image Source: Zacks Investment Research
Additionally, the -$5.98 EPS estimate for the current fiscal year represents a 31% decrease in earnings year-over-year.
Image Source: Zacks Investment Research
GME has stretched valuation levels – its 1.4X forward price-to-sales ratio is well above its five-year median value of 0.2X and represents a staggering 273% premium relative to its Zacks Industry. Furthermore, GME has a Style Score of a D for Value.
Image Source: Zacks Investment Research
Bottom Line
While the stock split can undoubtedly breathe new life into GME shares, I think it’s beneficial for investors to heed caution with this stock and look to park their cash elsewhere.
Valuation levels are elevated quite considerably, the earnings picture has softened, shares are incredibly volatile, and the company has incurred heavy expenses within its transformation.
Instead, investors seeking exposure to a stock split with video game exposure should consider Nintendo (NTDOY - Free Report) . The digital entertainment titan is slated to undergo a 10-for-1 split later this year, near the beginning of October.
NTDOY has been on a blazing-hot earnings streak, exceeding EPS estimates in ten consecutive quarters. In its latest quarter, Nintendo easily beat the $0.48 Zacks Consensus EPS Estimate by a sizable 110% and reported quarterly EPS of $1.01.
Additionally, NTDOY shares have been much less volatile and have provided a higher level of defense than both GME and the S&P 500 year-to-date.
Image Source: Zacks Investment Research