GME Q2 2024 Earnings Recap and Valuation Analysis - How to Value GME Price!

hey guys happy Wednesday September 11th today as y'all probably know GameStop reported their Q2 earnings yesterday and I wanted to take a minute to go over some high level Thoughts with you we're not going to go through the 10q in detail just the things that stood out to me that I think as you're investing or thinking about trading GameStop it's worthwhile to point out to you got a couple of other things I want to talk about common questions that I've seen floating around over the last 24 hours since they released that earnings we're going to talk about the 20 million in share dilution questions that are going around about is GameStop going to do dividends warrants or units where are the marketable Securities on the balance sheet what about the share count discrepancy why was there only 360 million shares or so on the financial statement the big lie on social media about Book value people telling you that book value should be used to calculate GameStops price we're going to clear that up again and tell you what you should be looking at to properly value GameStop and that goes into the next bullet point I have up here the big ratios mistake what are the ratios that people are misdirecting you to because they don't want you to look at the ones that actually matter I'm going to tell you which ones actually matter so that that can help you as you're deciding when and where to enter and exit the play we're going to follow that up with one quick example of GameStops competitors some comps and how those ratios look on a solid company where GameStop is falling short and what it's going to take to fix it and then we're going to wrap up with my trading strategy for GameStop I did buy some GameStop today at $19.50 I'll talk about why I did that and what I'm looking for on the upside and downside from that entry point now I want to get through this as quick as possible so with all that being said let's get right into the [Music] info as we're going through today's information keep in mind that I trade GameStop and my my content is designed for people who are looking to get the best entry possible and sell into run-ups take profits wait for it to come back down rinse and repeat if you have a different strategy that is fine you still might find some of this info useful especially if you're wondering why isn't the price trading at4 or $50 like those other guys are telling me we're going to walk through today why the shorts or the people with more money than us might be suppressing the price there are a lot of different things going on with GameStop right we got alos we got high-speed Traders we got shorts we got retail we got CPI this week PPI we got the FED meeting next week we got an election coming up this is going to be a heck of a play there's going to be a lot of volatility and if you want to trade it I think it's important that you get the best entry possible if you can understand how the stock is being valued by the market that will help you make some decisions on what is a good entry point and what is a good exit Point into any volatility and before we go into these four bullets from GameStop and a couple of highlights from the tenq I want to give a shout out to a couple of the great GameStop YouTubers who I think are providing levelheaded analysis of this play tetron invest and Richard Newton I do enjoy their content I don't always agree with everything they say but I think they present a very balanced view of the play unemotional and I do appreciate that the highlights from Gamestop here today A disappointing Revenue number 798 billion for the second quarter compared to 1.1 billion for the same quarter a year ago sgna $270 million will talk about how I measure that when we look at the spreadsheet in just a second net income was positive 14.8 million thanks to interest income and cash and cash equivalents as we were expecting with the cash raise done in May and June came in at 4.2 billion I plugged all of GameStop's numbers from their 10q into my spreadsheet so we can analyze them really quickly the number of locations here at the top of the screen we're going to talk about in just a second when we look at a couple of footnotes we won't get a update on that probably until the 10K so this is likely not an accurate number the fact that GameStop is probably closing some stores might have something to do with the decline in Revenue but we have here the net sales or the revenue for the company $798 million in red you can see that was over a 31% decline year over-year and one thing that is inescapable inconvenient I get it but still a fact is that the company has been in a long long slide for many years on revenue and that is definitely something that Wall Street is looking at as they're deciding what to Value the price of this stock at GameStop's gross margin for Q2 was $248 Million that is our Revenue minus the cost of that Revenue as you can see from looking at the previous quarters 31 % gross margin is a very healthy Improvement and something to be proud of sgna came in at $271 million and the easy thing to do but incorrect thing to do would be look back a year ago and say oh well that's a $50 million improvement from Q2 a year ago and here is why just looking at the dollar amount is not the right way to do it because as revenues come down and as stores get closed we would expect sgna to decline really what we want to do is measure sgna as a percentage of Revenue and what we have here for that number is 33.922880 slam them for that and they had a bonus from the interest income $395 million you guys might remember two weeks ago I told you to expect an interest income for this quarter right around $40 million with that contribution from interest income the total net income came out positive $14.8 million or 4 cents positive EPS while we're here on the 10q let's talk about a couple of just small things common questions that are out there in social media right now the first one being marketable Securities why is it only $1 million where is all of their investment and how did they generate that interest income if we read down in the footnotes below those financial statements I think the answer is right there for us they explain that any investment in treasuries that is a maturity of 90 days or less is going to be shown in the cash section of the balance sheet only investments in treasuries that are greater than 90 days but less than year will show up in that line item called marketable security so they were likely investing in t- bills but with maturities of less than 90 days either that or money market funds in either case t- bills under 90 days or money market funds are going to be considered cash so it's buried in here on this line item called Cash and cash equivalent if the maturity is less than 90 days then by accounting rules you can consider that equivalent to cash why did they switch up their strategy why did they have have $2300 million in marketable Securities and now all of a sudden they're investing in these really short-term T bills because of the current situation going on out in the world of Finance this inverted yield curve that you might have heard of shortterm treasuries are actually paying a higher interest rate than longer term and so this just tells us that the finance team the CFO whoever is in charge of making these decisions that GameStop is doing a good job of putting the money in the right place to earn the highest possible yield one other thing that you might have noticed if you were looking closely at the income statement is that the number of shares reported that they calculated the earnings per share off of was 386 million shares and if you were asking yourself why does it say 386 million when I know that the float after the dilution they did in May and June the flow is around 426 million according to accounting rules company are supposed to use a weighted average of shares for the quarter so that is how we get 386 million shares on this 10 Q for Q2 and you can expect that in Q3 the accurate number of shares 426 million will be what shows up on that one unless of course they're doing additional dilution in Q3 and we'll get a new weighted average for that quarter continuing on our list of things to chat about very briefly there was also an after hours yest yesterday for GameStop that 8K notifying investors that the company did file a prospectus supplement that they were going to do a ATM for an additional 20 million shares the only thing that I want to say about that is I don't know what Ryan Cohen's plan is for that it's either going to be one of two things he's going to churn through them in the next few days or the next couple weeks and put that money in the bank right away or they are just preparing this early in case there is another big Spike far above fair value they have the paperwork ready to go and they can sell into any high volume price spike day and if that happens if they're planning on doing that they could make well more than the $400 million that we see listed here is the potential that they could earn from this prospective supplement if they are selling them right now a little bit every day then I would expect that the company will update investors in short order once the perspectus once the 20 million shares is fulfilled and if we don't hear anything then I'm going to assume that he's keeping it in his back pocket for a rainy day and a price run up why would GameStop do more dilution why do they need another 400 million 600 million 800 million whatever they can get from this why why that's what everybody wants to know they are doing their job guys the core business is declining on Revenue it's not making money at best it's going to break even the company is only profitable because of interest income so you have to understand that they are trying to stack cash and give themselves the most flexibility to Pivot the business to make it a real turnaround story if you want to turnaround they're going to need the money to do it so I get it that it is irritating believe me I understand dilution is always irritating but I think that when management of one of these corporations is doing a delution that there is always a plan I just wish in the case of game stop that they would communicate that plan and I know some of y'all think it's real cute that Ryan Cohen and GameStop are quiet about their plan but I personally don't feel that way and I know that Wall Street doesn't feel that way either and you know I'm not going to get into a big debate about whether he should reveal the plan or not but I do think it would be nice for investors to know is more dilution going to come later this year next year it matters to us if we're trying to get the best price we don't want to be buying right before a dilution announcement no one wants that to be a surprise right but if you get a communication for management that hey we might be raising more cash at least you have that in the back of your mind as you're making your buys and it might help you decide what price level you're willing to buy at if you're going to hold this thing for a while that's how I look at it anyways while we're talking about dilution over the last week I saw a lot of people reposting videos from other other YouTubers talking about maybe GameStop could issue warrants or maybe there's units that they're going to issue guys just chill on all of the hype stuff what you see from this S3 that was filed back in May with these seven different Securities listed here is a very standard form you can find it from many different companies it's called a mixed shelf offering companies do a mixed shelf because they can just list everything get it all done in one timely cost-saving filing and they have all of the options open to them so Tony are you saying there's a chance there's always a chance everything is on the table but all you've seen is ATM offerings Equity offerings of common stock and that is mostly what you ever see every now and then companies will do a unit where they pair shares with warrants or debt with warrants but that is not actively happening right now and you'd get a prospective supplement if that ever did happen and I honestly don't see any reason for GameStop to ever do that so this is not on my list of Highly probable things to see warrant or units coming out of GameStop there is obviously the potential for more common share ATMs because they haven't communicated a plan and we've seen three of them now since May so I'm going to say the probability of more is going up in my mind more ATM offerings of class a common stock could Gamestop ever issue a dividend a lot of people think that a dividend is a Magic Bullet to make the shorts cover I don't necessarily agree and I also think that paying a dividend right now while the company is actively diluting trying to raise money and has no excess earnings would be a der of Duty of management Dividends are typically paid out when you have excess earnings on the income statement so when you show me an income statement where they've got $100 million of extra income $200 million of extra income in a quarter that they don't know what to do with then maybe we could talk about a dividend but I just don't see it as a realistic option for a GameStop right now could it happen sure Anything could happen but I'm not forecasting dividends in the near-term future maybe I'll be wrong we'll just have to wait and see as we wrap up here I want to talk about the book value lie and the ratios that people don't want to talk about when they're covering GameStop and what tips I can give you of how to properly value this stock so that you can make a intelligent entry if you're trying to trade this stock or buy it and hold it remember that book value is a liquidation value so unless you're planning on GameStop going bankrupt Book value is frankly just irrelevant we only care about Book value and we're looking for a value play where the market cap is underneath the book value of the stock and that is not the case with GameStop nobody should be talking about Book value with GameStop we should be talking about ratios that make sense that Wall Street is analyzing this play at because that's what Management's doing when they're deciding when to dilute that's what the shorts are looking at when they're deciding should I short this thing don't you think that you should understand what ratio all of these people are looking at so that you can get the best entry on this stock if you're interested in buying it or trading it there are people that want to talk about the balance sheet or the solvency ratios the liquidity ratios even the efficiency ratios the turnover inventory those are all fantastic at GameStop but none of them really affect the price they're like the first hurdle okay we got a solid company here now is it making money and that's where you get into profitability ratios Market ratios and the valuation ratios and and that is really what you need to focus on as an investor and what I would encourage everybody on social media to start educating your audience on how to properly value this stock what really matters for GameStop the price of a stock is derived from earnings from income not from cash sitting on the balance sheet you could have five or even 8 billion dollar on the balance sheet but if you don't have earnings from operations they're not really going to care and investing in treasuries where the company's earning four or 5% is not really interesting to Wall Street either because they could just go invest in treasuries themselves and not have all the risk of buying a public company that has a declining core business so it really is incumbent on Ryan to deliver a real plan a strategy an acquisition or some investment to drive earnings far above just in investing in treasuries the book value of GameStop is just over $10 but if you want to see some price targets from Wall Street or some institutions coming in and buying this thing with strength there's going to need to be earnings you're going to need to talk about these Market ratios and the valuation ratios to justify a price Target that you're talking about on social media walk through these ratios and show your work to justify your price Target and just so you know what I'm talking about what you're up against as far as when an institution is looking at making an investment in GameStop versus another company I pulled three other companies from the retail or specialty retail or computer and Hardware retail segment and put them here on a spreadsheet and I'm showing you here some of these valuation ratios and how GameStop Stacks up against these other companies and if I have it highlighted in red it is a bad number the EV to eida way way too high the PE ratio for GameStop because of lack of earnings Skyhigh institutions aren't going to pay that high of a valuation for GameStop Roe pathetically low from Gamestop because of lack of earnings and the free cash flow yield is a negative number compared to these other companies and then down at the bottom I have the average for the S&P so you can see what the Dilemma is for GameStop and why Ryan and management know that they need to transform the company trust me management knows what they need to do I'm trying to communicate to you guys what they need to do so that you understand what the struggle is I it drives me crazy to see people saying I don't understand why it's not at $40 or $50 I mean look at the book value book value does not matter these valuation metrics are why GameStop is being held back unless you get roaring Kitty starts tweeting and you get a day or two of running up and that could happen again if you want to just buy and hold and wait for a roaring Kitty tweet knock yourself out there probably going to be another one but if you want to understand how to Value the company properly and what management is focusing on these valuation metrics and that chart that I had up there the ones on the far right side those are what you need to learn and I hope that you do and I hope more of you start talking about it for those that want to play the algo game or the moas game or the Buy and Hold game or wait till Ryan announces a plan game that's all fine with me I really don't care what you do but for those of you that want to learn how to properly value companies and what in my opinion is holding GameStop back these are some things that I suggest you start learning and start suggesting to the content creators and folks on social media hold them accountable to talk about these things because they are the real problems for GameStop right now and like I said I'm sure that management is aware of this stuff and that is part of the reason Ryan is raising money to transform the company and start delivering some earnings Beyond four or 5% I said at the end of this video I would talk about my trading plan for GameStop we are pushing up on a upcoming live stream here in a few minutes so I want to wrap this video up we'll talk about my trading of GameStop on the live stream so I hope to see you there come and ask some questions whatever you want to ask about GameStop and we're happy to try and help you the best that we can I'm not a financial adviser I'm not a CPA I'm just a dumb investor like you guys but I do know a thing or two and I know when I see it on other YouTube channels and they are misdirecting you guys to talk about things like Book value or liquidity ratios things that are irrelevant to the price and I hope that you got some value out of learning what is really important to GameStop going forward thanks again for watching all the way to the end I am Tony dinaro and I will see you on the next video [Music] oh