Today’s recommendation is a bargain basement pick from Validea Hot List. This stock is currently trading near 52-week lows, but as Validea Editor John Reese explains below, its future looks brighter. Patient investors who get on board now will be able to enjoy a 3.8% yield while they wait.
“The world’s largest multi-channel video game retailer, GameStop Corp. (GME) offers all sorts of Nintendo, Xbox, and PlayStation games and game units, as well as a variety of computer games and online platforms. The Texas-based company has more than 6,000 stores in the U.S. and 14 other countries, operating under the GameStop, EB Games and Electronics Boutique names. The firm has a $2.1 billion market cap, and has taken in more than $9 billion in sales over the past 12 months. [Below, we evaluate the company using our] Price/Sales Investor strategy based on Kenneth Fisher. Guru Score: 80%.
Price/Sales Ratio
“The prospective company should have a low Price/Sales ratio. Non-cyclical (non-Smokestack) companies with Price/Sales ratios below 0.75 are tremendous values and should be sought. GME’s P/S of 0.22 based on trailing 12-month sales is below 0.75 which is considered quite attractive. It passes this methodology’s P/S ratio test with flying colors.
Total Debt/Equity Ratio
“Less debt equals less risk according to this methodology. GME’s Debt/Equity of 0.00% is exceptional, thus passing the test. ...
Long-Term EPS Growth Rate
“This methodology looks for companies that have an inflation-adjusted EPS growth rate greater than 15%. GME’s inflation adjusted EPS growth rate of 7.00% fails the test.
Free Cash Per Share
“This methodology looks for companies that have a positive free cash per share. Companies should have enough free cash available to sustain three years of losses. This is based on the premise that companies without cash will soon be out of business. GME’s free cash per share of 3.26 passes this criterion.
Three Year Average Net Profit Margin
“This methodology looks for companies that have an average net profit margin of 5% or greater over a three year period. GME, whose three-year net profit margin averages 4.01%, fails this evaluation. ...
“We are adding [GME] to the portfolio.”
- John P. Reese, Validea Hot List, August 3, 2012
