The stock of GameStop (GME) has been under severe pressure even as the holiday season is getting going. The company reported quarterly earnings that disappointed analysts. Still, GME management insists that they can still make the ambitious full-year guidance, implying they expect strong business in the current quarter, which includes all those holiday purchases. Whether they do reach the full-year guidance or not, the stock does seem to have overly discounted short-term business softness. The stock now trades at a single-digit price-to-earnings (P/E) ratio, and the dividend results in a juicy 4% yield. Where else can you get 4% on your money nowadays? Not many places, and GME pays you that just to wait for business to get better and the stock to go up in the long run. That is, if you don’t think that it is really “game over” for this “bricks and mortar” (B&M) retailer.
This earnings reporting season has been quite tough on a growing number of B&M retailers, just as Amazon (AMZN) continues to eat most of their lunch! The big question is whether B&M retailers are really out for the count, or in the long run they can still thrive with a “hybrid” strategy of serving their customers with great online offers, while still giving them reasons to visit their stores. Are you and/or your gaming friends still going to GameStop or EB Games (part of the same company)? Do you drop by to trade in old games and get new ones? Peter Lynch, the legendary fund manager who beat the markets for a long period of time while at the helm of the Fidelity Magellan fund, used to recommend that people invest in what they know.
If you are a gamer and know GameStop well, perhaps you can make a better informed decision as to GME is a buy at current prices following its steep sell-off. While doing your homework, you should keep in mind that the markets nowadays tend to focus too much on short-term performance. This creates great buying opportunities for the long-term investor who does his or her homework. If you do, and believe the company can do well, not necessarily this year, but also five years from now, then you can take advantage of Wall Street’s focus on the short term to make a nice investment for the future. Again, if so, GME offers you a juicy 4% dividend while you wait!