Gamestop Corp (GME) Annual Valuation – 2014

200px-GameStop.svgBenjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing 5 Undervalued Companies for the Defensive Investor.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a specific look at how Gamestop Corp (GME) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): GameStop Corp. (GameStop) is a holding company. GameStop is a multichannel video game retailer. It sells new and used video game hardware, physical and digital video game software, accessories, as well as personal computer (PC) entertainment software and other merchandise. As of January 28, 2012, its retail network of brands includes 6,683 Company-operated stores in the United States, Australia, Canada and Europe, primarily under the names GameStop, EB Games and Micromania. It operates in four segments: United States, Canada, Australia and Europe. It also operates electronic commerce Websites under the names,,,,,,, and The network also includes, Game Informer magazine, Spawn Labs, Inc. and a digital PC distribution platform. On March 31, 2011, GameStop acquired Spawn Labs, Inc. In May 2011, it purchased Impulse Inc.

GME Chart

GME data by YCharts

Defensive Investor – must pass at least 6 of the following 7 tests: Score = 3/7

  1. Adequate Size of Enterprise – market capitalization of at least $2 billion – PASS
  2. Sufficiently Strong Financial Condition – current ratio greater than 2 – FAIL
  3. Earnings Stability – positive earnings per share for at least 10 straight years – FAIL
  4. Dividend Record – has paid a dividend for at least 10 straight years – FAIL
  5. Earnings Growth – earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period – PASS
  6. Moderate PEmg ratio – PEmg is less than 20 – FAIL
  7. Moderate Price to Assets – PB ratio is less than 2.5 or PB x PEmg is less than 50 – PASS

Enterprising Investor – must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 2/5

  1. Sufficiently Strong Financial Condition, Part 1 – current ratio greater than 1.5 – FAIL
  2. Sufficiently Strong Financial Condition, Part 2 – Debt to Net Current Assets ratio less than 1.1 – PASS
  3. Earnings Stability – positive earnings per share for at least 5 years – FAIL
  4. Dividend Record – currently pays a dividend – PASS
  5. Earnings growth – EPSmg greater than 5 years ago – FAIL

Valuation Summary

Key Data:

Recent Price $36.56
MG Value $0.81
MG Opinion Overvalued
Value Based on 3% Growth $20.50
Value Based on 0% Growth $12.02
Market Implied Growth Rate 8.68%
Net Current Asset Value (NCAV) $0.95
PEmg 25.86
Current Ratio 1.13
PB Ratio 1.87

Balance Sheet – 3/31/2014

Current Assets $1,949,600,000
Current Liabilities $1,726,000,000
Total Debt $1,600,000
Total Assets $4,091,400,000
Intangible Assets $1,609,000,000
Total Liabilities $1,840,000,000
Outstanding Shares 115,300,000

Earnings Per Share

2014 $2.99
2013 -$2.13
2012 $2.41
2011 $2.65
2010 $2.25
2009 $2.38
2008 $1.75
2007 $1.00
2006 $0.81
2005 $0.56

Earnings Per Share – ModernGraham

2014 $1.41
2013 $0.92
2012 $2.39
2011 $2.26
2010 $1.92
2009 $1.61

Dividend History

GME Dividend Chart

GME Dividend data by YCharts


Gamestop Corp is not suitable for either the Defensive Investor or the Enterprising Investor.  The Defensive Investor has concerns with the low current ratio, lack of sufficient earnings stability or growth over the last ten years, and the high PEmg ratio.  Meanwhile, the Enterprising Investor has concerns with the low current ratio, and the lack of sufficient earnings stability or growth over the five year period.  As a result, value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities such as Apple Inc. (AAPL).  From a valuation side of things, the company appears to be significantly overvalued after seeings its EPSmg (normalized earnings) drop from $1.92 in 2010 to $1.41 for 2014.  This demonstrated drop in earnings leads the ModernGraham valuation model to return an estimate of intrinsic value well below the market price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Gamestop Corp (GME)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

If you like our valuations, why not check out ModernGraham Stocks & Screens?  It’s a great way to review the valuations while screening for things like low PE ratio, undervalued companies, etc.!

Disclaimer:  The author held a long position in Apple Inc. (AAPL) but did not hold a position in Gamestop Corp (GME) or in any other company mentioned in the article at the time of publication and had no intention of changing that position within the next 72 hours.

Logo taken from wikipedia; this article is not affiliated with the company in any manner.






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