The short thesis seems to be that Gamestop will eventually go the way of Radioshack, and thus far, this hasn't happened (doesn't mean it won't happen).
DGI's will be interested to know that Gamestop has become more shareholder friendly over the last four years and pays a $1.38 dividend, good for a 3.45% yield, up from $.80 initially in fiscal 2013. The company has also been returning capital by way of buybacks since 2010. Over the last five years, the company has returned $1.7B to shareholders by way of buybacks. On a current market cap of $3.75B, it's encouraging to note that the company has retired almost 1/3 of the float since 2010.
I happen to think the company is cheap, but not without risk obviously. The prevailing sentiment seems to be that bricks and mortar retail vendors of hardware and software are going to go the way of the dodo, and maybe this sentiment is correct. But, until Amazon can deliver game consoles by drone to every household in the universe, I'm of the humble opinion that Gamestop will continue to have a place in the universe selling all things gaming related.
Gamestop seems to have grown free cash flow at a 17% CAGR since 2002, however, this initial observation might be optimistic in that this period likely encompasses aggressive expansion of the store base, and certainly, store expansion going forward isn't likely to be anywhere near as rapid as it has been over the last 14 years. For my purposes, I modeled future cash flows at zero growth going forward and still came up with a interesting result.
I modeled free cash flow based on the average free cash flow over the last 10 years, or $407M (TTM FCF was $550M so I believe I'm being conservative), and I came up with the following result:
|Sum of DFC's||Re =|
|G =||8%||9%||10%||12%||15%||Average, growth, blended Re|
|Average, Re, blended growth||67.84||57.49||49.85||39.29||29.64|
The company maintained its guidance for fiscal 2016 at between $3.66 and $3.86 per share, so about 9.3x expected 2016 earnings at the low end.
If Gamestop somehow gets down below $29, I will likely revisit the analysis. I'll probably add another 30 shares if it gets down to $25.