GameStop (GME) Indicated as Possible Takeover Target
Shares of GameStop Corporation (GME: Charts, News) rose 0.39 or +1.74% to 22.75 in trading on Tuesday after an article appeared in Bloomberg suggesting the possibility of the company being a prime takeover target, according to some analysts. The article also highlighted the enormous short interest in the stock with as much as 47 million shares or 37 percent of the company's float currently being on the short side.
GameStop, based in Grapevine, Texas went public in 2002 and operates over 6,000 stores in the United States and abroad. The company is one of the largest video game retailers for Sony's (SNE
) PlayStation and Microsoft's (MSFT
) Xbox 360 gaming platforms, allowing customers to trade in old games and gaming systems for credit towards the purchase of other products. Daily Chart
GameStop stock is currently trading at the lower end of its range, having fallen over 13 percent this month. The company is valued at 0.33 times sales, very close to its record low of 0.30 made back in 2003. At these levels, GameStop stock is trading at 7.9 times annual earnings of $2.72 per share, having traded between its 52 week high of 28.66 in May, and its yearly low of 18.34 made in March. Earlier this month, the company cut estimates for revenue growth from 6.5 percent to 3 percent due in large part to growing competition from other large retailers such as Best Buy (BBY
), which began offering customers pre-owned games last year. Furthermore, many large gaming software publishers, such as Electronic Arts (ERTS: Charts, News) have made more games available through Internet downloads that negatively affect GameStop's business. Because of competition from online downloading of gaming software, short sellers have compared GameStop to Blockbuster, the large movie rental company which filed for bankruptcy in 2010 after failing to keep up with online competitors such as Netflix (NFLX
). Nevertheless, according to Bloomberg, GameStop's cash position at the end of the last quarter was $443M versus debt of $125M. Blockbuster's cash position was considerably weaker at the time it filed for bankruptcy, with $64M in cash versus debt of $920M. Because of GameStop's enviable cash position and low stock price, on November 17th GameStop's board announced that it was allocating $500M to buy back its own stock with a portion of the funds used to retire outstanding debt set to mature in October of 2012. Furthermore, the company is expanding to make available Internet downloads and allow users to stream video games online which will improve GameStop's competitiveness and bottom line. GameStop contrasts sharply with Blockbuster not only in their strong cash position, but in adapting to technology in order to keep pace with competitors. The stock - which traded as high as $63.30 in late 2007 - at current levels trades at a little over 1.0 times net assets. Nevertheless, the enormous short interest in the stock could also become a major factor contributing to the stock's near term performance. According to Bloomberg, analysts expect GameStop stock to trade over $30 per share within the next twelve months with only one out of 18 analysts recommending the stock as a short. Time will tell if the company can keep up with technology and adapt to current trends, changing its model from a storefront based company to include online downloads and software streaming. Notwithstanding, the company's assets continue to make the stock attractive to many analysts at current levels. Other News About GME GameStop Future Seen in Private Equity as Shorts Climb: Real M&A
Bloomberg article on GameStop as a possible takeover target. GameStop Cyber Monday Also Has Free Games, T-Shirts, Batman Forever
GameStop offers customers special deals on gaming consoles and video games. Other Stocks in the News American Airlines bankrupt; shares plunge
American Airlines files for bankruptcy. PE firm eyes buyout for Yahoo's U.S. business
Thomas H. Lee Partners is interested in buying the U.S. operations of Yahoo Inc. Copyright 2011 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.
Published on Nov 30, 2011
By Jay Hawk