Alright listen up. Forget about the short squeeze. From now on, it should be considered nothing more than a cherry on top when it happens.
I’m gonna tell you why GME was, and is one of the deepest value picks in the market, regardless of a short squeeze. This is a bit of a doozy to read, fair warning now.
Let’s go back in time:
The date is April 3rd, 2020. Gamestop is $2.57 a share (low of the day). With approximately 70 million shares outstanding, that left GME with a market cap of only about $180 million USD. At the time, GME had 5,830 locations worldwide.
So in other words, the largest retailer in gaming, what was then a roughly $150 billion dollar industry, had a market cap of only $180 million dollars. That is absolutely ridiculous.
Unfortunately, at the time, GME was declining in both popularity with customers, and the stock market. This was also in the deepest pit of the COVID-19 market crash.
So what changed? Ryan Cohen.
For some reason, everybody looked away as RC swept in and bought a roughly 9 million share stake in GME.
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Here is a very quick recap on the significance of RC and his previous company, CHEWY.
RC started CHEWY at age 25, and grew it to a multi billion dollar company in just 6 short years. He did this in spite of the fact that the pet industry already had a massively dominant player with nearly a third of the market share. Petsmart.
RC made sure that chewy did the things that petsmart didn’t. He focused on a better customer experience.
Petsmart, to avoid getting blockbuster’d, bought chewy for $3.5 billion dollars, and continues to operate it with success to this day.
Today, CHEWY has a market cap of roughly $32 billion dollars. Keep in mind, the pet industry is about $65 billion dollars smaller than the gaming industry.
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Back to GME, present day. Ryan Cohen is the Chairman, and all his buddies are on the board. Every day they add new products and policy to expand the market reach of the company. Namely, the addition of computer hardware, computer accessories, TV’s, Cameras, Stereos, Headphones, Clothing, and a brand new gaming rental service. Soon we could see anything from laptops/tablets, to cloud gaming services and more. Not to mention their newly inked deal with Microsoft earning them a percentage royalty on all digital goods bought on xbox consoles that are sold at gamestop.The current market cap of gamestop is just $11 billion dollars at this “overvalued” price.
$11 billion market cap on this company is a joke. Oh yeah, and they’re debt free as of April 30. and have 4,816 locations worldwide.
To put things in perspective, Gamestop is transitioning it’s business to not only remain a leader in the gaming industry, but also be a part of the computer hardware industry ($700b dollar market), as well as general consumer electronics ($1.2 trillion dollar market). We haven’t even mentioned the boosted market share of these industries that comes along with being a fancy ecommerce business. Something that CHEWY thrived at, and I am positive will come to GME.
So who is the “petsmart” in this scenario? I believe it’s Best Buy.
Best buy has a market cap of roughly $31 billion dollars. That’s $1 billion smaller than CHEWY in a much larger industry.
Looking at BBY as a business, they are not moving into an ecommerce market NEARLY fast enough. Their goals seem to be more focused on competing with Walmart than with Amazon, and at the rate things are going, I believe GME will start cutting BBY’s grass very soon. It’s quite possible that BBY will even attempt to purchase GME.
With such overlap in products, and BBY’s approach to business being a “come into our store” first attitude, it shouldn’t be long before GME starts to eat at their sales by beating them in convenience, and customer experience. (Did I mention GME dropped the free shipping limit to $25/order?). Gamestop has already turned all of their retail locations in the US into small distribution centers where products can be delivered to their customers in 2 hours or less. Even Amazon hasn’t achieved this, let alone Best Buy.
If there’s anything we’ve learned from the dominant forces that are Skip The Dishes, Door Dash, Uber, and more… It’s that consumers will pay a premium, and flock to anywhere that the experience is worthwhile. This experience is what Ryan Cohen and his team will bring to Gamestop.
If Best Buy doesn’t speed their own transition along, then all they will have left as a competitive advantage in the market is the geek squad. IT tech support will be their whole game.
Now with that said, GME is not guaranteed to complete this transition successfully… But given what RC and the incredible team at Gamestop has to work with as a starting point, and the overwhelming support that follows the brand right now, I think they have an excellent shot.
As DFV once said, “Suppose I’m 75% certain that GME breaks $10/sh before my calls expire. Then what do you propose I do?”
Well, suppose I’m 75% certain that GME becomes an absolute force in the soon to be $2 trillion dollar combined industry, and makes such a wave that they’ll either eat some of the competition, or, be acquired by a business like Best Buy, the same way Petsmart did to Chewy. Then what do you propose I do?
I’ll buy and hodl.
This is not financial advice, these are just my opinions.
P.S. don’t actually forget about the short squeeze… just don’t worry so much about it. You’re invested in a wonderfully undervalued company.