Editor's Note: Below is a quick flashback on our long Gamestop (GME) research call from our Retail analysts Brian McGough and Jeremy McLean. We are also pleased to announce our new Sector Pro Product Retail Pro. Click HERE for further in-depth retail research.
WHAT MCGOUGH WROTE ON 1/11/21
Barron's recently published an article with a negative stance on GME. Watch the video above for more details. The key thesis points we saw were as follows:
- Falling sales: “We’re not seeing anything to get excited about. They’re missing numbers, not beating numbers.”
- Valuation: 11x EBITDA, trading similar to Target (TGT).
- Shift to online download of games, referencing digital growth on recent quarter.
- “Many of GameStop’s stores are inside malls.”
- Scion reducing its stake (3% portfolio position that went up ~4x).
What McGough Wrote On 1/6/21
Statistically speaking, it was inevitable that some of the GME shorts are Hedgeye clients. I had a great conversation with one bearish fund manager that strongly doubted our activist angle on the name – but ultimately read through our presentation and gave the idea a fresh look. No wonder he runs one of the best performing Hedge Funds of the past 10-years – his process includes using many forms of high-quality inputs that might run counter to his natural bias against an idea – to get him closer to the alpha-generating truth. He’s a winner, and he hired a team of winners. Good Hedgeye match, and great long-term partner.
Then there are the haters…it just so happens that they are those with the biggest short positions in GME. Two in particular. One was not a client of Hedgeye, but one of our Senior salesmen reached out to start a constructive dialogue. The investor’s answer… “just another idiotic call from the morons at Hedgeye.” The salesperson reminded the PM that this particular moron (me) called for RH to be a 10-bagger+ when the stock was $30 and it’s now flirting with $450. Needless to say we didn’t get the chance to engage in a fruitful debate with that fund. They already have all the answers.
Another big short was a Hedgeye client. Yes, they fired us – coincidently when we took the other side of their core short position. I won’t pretend that I was happy about this…it hurt – both my ego and my wallet. But the way I see it, anyone with such a low integrity investment ‘process’ (if you want to call it that) will likely fall victim to their own close-mindedness towards differing trains of thought, new data inputs, and thoughtful financial analysis. Also, if you feel so strongly about an idea, wouldn’t you want to engage in a debate to attempt to convince me to change my mind? I guess when you’re the smartest guy on the planet you don’t need thought-provoking research to make you better.
Is getting fired by a client for doing my job how I want to start 2021? In this case, yes, it is. My children noticed I was bummed out that night at the dinner table. I explained what happened – including that I stuck to my guns and made what I think is the right call for my clients despite pressure to bow to a paycheck. When my son said “I’m really proud of you Dad” it hit me like a brick wall that the principles by which we conduct ourselves in business can have far-reaching effects to those closest to us – the next generation of high-integrity leaders.
WHAT MCLean TwEEted ON 1/5/21