Wednesday, December 02, 2009

BAGAKOAA December 2, 2009 Is it time to stop playing games?


December 2, 2009

Is it time to stop playing games?

Remember GAME STOP (GME). It’s been pimped here since about July. My son got me involved in it. We entered the stock at about 20.88 and eventually averaged cost it to about 22.80. There was some profits taken in October in the 26 range and then gathered some more with an average cost of 24.15. I pegged this in the blog as 32.00 stock by spring 2010. This is still a good play and the 32.00 range still makes sense.

Today is took a major beating, down almost 9%. Walmart is getting very aggressive in its console and game pricing for the Holidays. There were a ton of institutional investors selling some January 22.50 GME call options. No one should underestimate WMT when it gets aggressive. However, having spent about 15 hours with my son at several GME locations, aggressive pricing will not stop the 12-25 years old consumer base from patronizing Gamestop. In fact, any sales of consoles at WMT will generate more customers for GME.

Visiting a GME is a unique gamer’s experience. You get greeted by a fairly clean cut knowledgeable employee who can answer your questions, tell you the latest cheats in game XYZ, help the parent around the grey areas of a T rated or M rated game, to make sure there are no surprises, and just do a great job of customer service.

By comparison, try and get someone to open the locked glass game door at a Walmart. Parents don’t tell kids where they are going to spend their holiday money or where to buy their games, the kids usually influence that decision. Also keep in mind that a significant portion of GME’s revenues come from selling used games. So little Johnny gets 4 games for Christmas, plays his way through them by New Years day, still has 40 bucks to spend on a game, he can take the four games and the 40 bucks trade in the used games, and get two video games at GME. GME has a new customer.

The 2.00 hit to the stock today is a GREAT buying opportunity. I am increasing a sizeable position by 25% at the opening tomorrow. It could drop another 2-3%, but it is not worth risking a miss on this good price. If you never followed me on this pick in July, it now has a respectable PE ratio of 10, has no scary debt, and has a great business model. As Cramer would say. You need to get in the GAME.

Salve Lucrum


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