Shares of GameStop Corp. GME have lost more than 70% year to date amid growing concerns the market for video game retailers will continue to fall. However, at least one notable investor is optimistic about the company's outlook.
What Happened
Hedge fund manager Dr. Michael Burry, through his Scion Asset Management, owns 3.3% of GameStop's stock and urged the board in a letter to consider buying back close to $240 million worth of stock. Burry's estimate found GameStop's cash on hand position to be more than $480 million which implies it only needs half of its existing capital to max out the $237.6 million in remaining buyback authorization.
Speaking to Barron's in a phone interview on Wednesday, Burry said he believes GameStop's balance sheet is "actually in very good shape."
Why It's Important
On top of a solid balance sheet, GameStop boasts the necessary cash flow to "justify a much higher share price," he said. In fact, 90% of GameStop's approximate 5,700 stores are free-cash flow positive.
"The balance sheet checks out for me," he added.
What's Next
There is a disconnect between the share price and reality as calls for doom and gloom for physical video games are overblown. Burry told Barron's a 2020 refresh of new gaming consoles will include physical optical disk drives and therefore "extend GameStop's life significantly."
"The streaming narrative dovetailing with the cycle is creating a perfect storm where things look terrible. [But] it looks worse than it really is."
GameStop's stock traded higher by 12.7% to $3.99 per share at time of publication.
Related Links:
GameStop Analysts See Hard Road Ahead For Retailer After Poorly Received Q1
GameStop Falls As Credit Suisse Lowers Earnings Estimates, Price Target
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