The Motley Fool: GameStop won’t stop growing
Video game retailer GameStop (NYSE: GME) recently reported a very good quarter, with earnings up 151 percent year over year and revenue rising 42 percent to $1.81 billion. CEO R. Richard Fontaine said that he is “very bullish on the future as three major metrics are transforming the business and accelerating the potential for GameStop growth.”
The first metric, the installed base of current-generation game consoles, such as the PlayStation 3, Xbox 360 and Wii, grew by 31 million units last year, expanding GameStop’s addressable market by about 34 percent.
Second, gamers are not just the stereotypical young males anymore: Fontaine says that 38 percent of gamers are female. Many may have been drawn in by rhythm-based games such as Guitar Hero. Wherever new gamers are coming from, the market is growing.
Third, the upcoming slate of games includes sequels to three of the industry’s best-selling franchises. It also doesn’t hurt that Grand Theft Auto 4 was released five days before the end of the quarter.
The video game market is exploding. Games are edging into new demographics as game publishers get creative with the capabilities of the latest hardware platforms. GameStop is building out its store network to take advantage of these trends. The company is worth a closer look.
Ask the Fool
Q: My stocks’ dividend yields vary from less than 1 percent to more than 3 percent. What’s a good number? Should I sell the low-yield shares and buy high-yield ones? – H.W., Tucson, Ariz.
A: It may seem that the higher the yield, the better, as it means you’ll collect more money from your investment. But keep in mind two things: Companies with low or no dividend payments can also be terrific holdings. They may have more pressing uses for their excess cash than paying it out to shareholders. For example, if they plow it back into the company, to help it grow, shareholders will also benefit.
Meanwhile, among those firms that do pay dividends, it’s very useful to check out just how quickly that dividend has grown over time. A 1 percent yield can be more attractive than a 2 percent one – if, say, the company has hiked its dividend by an annual average of 15 percent in recent years. You might then expect the former dividend to quadruple over a decade, while the latter one, if it grows at just 4 percent on average, may not even double. IBM’s 10-year average dividend growth rate tops 14 percent, while Nike’s tops 19 percent.
Q: What’s the “closing tick”? – R.B., Lakeland, Fla.
A: It measures the buying vs. selling activity for the very last trades of the day. To calculate it, take the number of stocks that ended on an uptick (i.e., their last trade occurred at a price higher than the previous one) and subtract the number that ended on a downtick. A positive number suggests an overall upbeat day, while a large negative number would indicate a big sell-off in the market.
My dumbest investment
Dick’s Sporting Goods was my dumbest investment. After listening to a TV stock guru talk up the stock, I decided to buy the day before its quarterly earnings announcement. Well, it plummeted. At one point I lost well over 25 percent within only a month. I continued to check out the financials of the company and decided that it was worth hanging onto. I planned to cash out when it hit a certain intrinsic value. The market agreed with me, and eventually the stock returned to my original buy price. However, I would have done much better (with much less risk) had I invested in T-bills. Moral: Do not just jump into a stock because a TV dude thinks it’s in your best interest. – Dan Gallagher, Mandan, N.D.
The Fool Responds: You were smart to do your own research into the company and to be patient. T-bills are often not the answer, though. They are indeed less risky, but stocks offer the possibility of greater growth, along with greater risk. Manage that risk by studying investing and companies and by diversifying.