We’re moving GME from our Best Ideas Long list to our Long Bias list. This Best Idea call has worked for us at warp speed. We went long at $14 on December 17, and has been over a 4-bagger over just under six weeks. To be clear, we still think that there’s upside potential to $100 here as the new facelift to the Board (and likely the management team) turns what was once a dying retailer into an e-commerce hub with high-multiple advertising revenue via its current asset base. Also, the catalyst calendar from here is very bullish, with a material comp acceleration from 5% for holiday to 40-50% at moments over the course of 2021. In addition, that will carry with it a massive earnings revision cycle – as we’re sitting at $2.70 in earnings for this year vs the Street at a loss of $0.17 per share. That’s an earnings revision we definitely want to be long. Then in June you have the Board change over when Ryan Cohen and team will begin to lay out their strategy as to how they are going to change up this business model to capitalize upon the white space in the gaming ecosystem. But to be clear, those are two different calls.
The earnings revision factor for this year is worth a stock between $30-$40. With the stock currently at a mind-blowing $65, that suggests about $25-$35 per share in benefit from the strategic initiatives that the company could and will roll out over the year. Given the black box of information associated with these initiatives, we’re not going to continue to press this stock higher on a massive unknown. False narratives can be toxic and cost real capital. Our research process is to hunker down, and decide what can and will be done to the business around the gaming ecosystem, quantify the cost/benefit, and then find the appropriate stock price. Do we think that a well executed turnaround will come out to 1x sales? Yeah, we said that on day 1 of our call. That’s the $100 call. But given the lightning speed of the stock price move, the time has come that we have to actually prove it. As of today, we cannot.
To be clear – we are not going short GME. Wouldn’t dare do that given the positive catalysts we think will be coming down the pike as the year progresses. But we’re simply taking the name down to our Long Bias list (which has been a recent source of alpha generation in itself) while we double down on the research process to add real facts and analysis to a debate, which has become messy, riddled with conflict, and downright nasty. We’ll do our best to bring well-needed integrity back to the debate here – which is how we’ve gone about our research process since our original call. Stay tuned for more research on this one from @HedgeyeRetail and @HedgeyeRetailJM.