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I don't like GameStop

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August 23, 2007 – Comments (2) | RELATED TICKERS: GME

I tend to rate stocks as underperform when I see stuff I don't like and the market continues to surprise me that people in invest in it.  So, instead of rating Gamestop, I'm just pointing out I don't like it.

It simply would not surprise me to see the market to continue to push it up...

So, here is what has me not liking this stock...

When it started in 2002 there were about 20 million shares, now there are 165 million fully diluted.  This share dilution thing kills the valuation of investments more than any other thing.  It is about an 8-fold dilution over about 5 years, and I suspect it is far more, but I did not take the time to look.  This level of dilution is so profound, it leaves me wondering if the stock performance can ever catch up.

To give a perspective of the market cap growth, at $4.90 in 2002 with the roughly 20.8 million shares, that is a market cap of about 102 million.  At the $46.34 right now, well, that's a fully diluted market cap of $7.64 billion, and I'd be willing to bet if I looked for dilution I'd find that figure low.

So, market cap is 7500% of what it was five years ago.  The sales growth has doubled between 2006 and that first offering in 2002.  With the 2007 estimate, well, the growth is 240% of what it was.

It seems to me that even though it is a fantastic growth story, the growth in market cap is far, far, far, far in excess of the over earnings of the stock.  Indeed, even making their $1.45 guidance this year, that is earnings of about 3% of the market cap and the rate of growth has to seriously slow down at this stage of the game for this company.

So, this one I watch for a bit...

2 Comments – Post Your Own

#1) On August 24, 2007 at 1:31 PM, dwot (77.77) wrote:

Good idea to watch... Now it is $49.40...

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#2) On December 19, 2007 at 11:32 PM, dwot (77.77) wrote:

Sigh, just over $60 now...

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