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Record Sales Propel GameStop (GME) +52% in
Less than a Year
Published:
January 21, 2008
As editor of
StreetAuthority's
Half-Priced Stocks newsletter, my job is to scope
out inefficiencies in the market -- companies trading at steep
discounts to their true fair value. In most cases, these
bargains are the result of stocks having lost ground for one
reason or another. However, there are exceptions.
For example, shares of video game retailer GameStop (NYSE:
GME, $49.32) jumped nearly +20% in the first quarter of 2007.
But in my opinion, they were still sharply undervalued following
that run-up -- as the intrinsic value of the company (a function
of its discounted future cash flows) was also on the rise.
So in early
April, I singled out the stock as a possible addition to
one of my portfolios, citing (among other things) an influx of
sales as the next round of gaming console upgrades kicked into
high gear. And aside from the eagerly-anticipated introduction
of the Nintendo Wii and rival systems from Sony (NYSE: SNE) and
Microsoft (Nasdaq: MSFT),
the upcoming software release schedule looked to be among the
brightest ever -- with games like Halo 3 destined to be
sure-fire hits.
And as anticipated, GameStop's performance has been
off-the-charts in recent months. Last quarter, the firm posted
an eye-popping +283% surge in earnings, driven by a +149%
increase in hardware sales. Soon after, the success of popular
software titles like Guitar Hero III would lead to the
company's best holiday season ever, as sales jumped +35% over
the 9-week period to hit $2.3 billion. And with demand showing
no signs of slowing, management has raised its profit forecast
for the rest of the year.
Meanwhile, the shares have zipped right past my initial $38 fair
value estimate, and even after a pull-back, currently stand at
$49.32 -- a better than +50% increase from where I first
recommended them last April.
In this month's newsletter, I profile another firm benefiting
from the explosive growth of video games. The company is a
leading provider of online role-playing content in China -- home
to more than 50 million fanatical internet gaming enthusiasts.
After revamping its business model, the firm is quickly gaining
momentum in the $1 billion market. In fact, last quarter it
posted an impressive +128% increase in earnings, as revenues per
user shot up more than +90% for the period. Yet, like GameStop,
the shares are still trading well below fair value.
To read my complete profile of this exciting firm -- available
only to subscribers -- I invite you to join us at
Half-Priced Stocks. To learn more, please visit
this link.
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Nathan Slaughter
StreetAuthority Staff Writer
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