Editor's Note: Below is a look into our long Gamestop (GME) call from our Retail analysts Brian McGough and Jeremy McLean. If you would like to learn more about our in-depth investing research product Retail Pro click here.
First Barron's, now Citron. The shorts continue to flow in on Gamestop (GME), and Hedgeye Nation continues to make money.
We've been on the long side of $GME since 12/17 - since then, the stock has gone vertical, gaining a whopping 190%.
On 1/21, Citron posted a video reiterating their short position on $GME, and calling Hedgeye out on the other side of the trade. Hedgeye Retail analyst Jeremy McLean responded, highlighting the Hedgeye #process, and $GME's ability to go much higher from here.
MCLEAN's Response to citron
Citron research put out a video on 5 reasons to be short GME, overall it was not at all compelling but we’re not going to refute all of the points here. However since we were directly referenced in the video, we do want to set the record straight. Citron correctly noted our estimates from our deck, but he cited a price target of $26 pulling the lowest price on a valuation range slide from our presentation.
If you know Hedgeye well you know we don't do "price targets", as in 12 month price target. We will say a price corresponding to a stock call (because people need it) but we think of it more as a fair value range given current information. As info, volume, volatility and price change with time, generally so does our view of a fair price range. In our Dec deck, we said $GME should at least be valued like other content vs distro embattled 'structurally pressured' retailers. On our numbers and those kind of retailer multiples, we said it was worth a range of $25-$35 ($30 midpoint).
With new management team making changes and Ryan Cohen aiding strategic direction, there's real turnaround chance, that's $100+ opportunity. $100 would only be about 1x our ’21 sales estimate, if this can be a powerful retailer (much more than the perceived seller of game discs) in a huge and growing category of gaming. We’re not saying this is what will happen, but it is a real possibility, and the odds of that have been rising with Cohen becoming more involved.
McGough's Response to Barron's
Following Barron's short-biased article on $GME, Hedgeye Retail analyst Brian McGough published the video above detailing our long position. Watch the video above for more, or see the key thesis points below:
- 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).
MCGOUGH 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.