GameStop: High Yield and Low PE

05/08/2017 2:50 am EST

Focus: STOCKS

Chloe Jensen

Chief Analyst, Cabot Dividend Investor

The investments in the High Yield tier of our model portfolio have been chosen for their high current payouts, notes Chloe Lutts Jensen, editor of Cabot Dividend Investor.

These investments will often be riskier or have less capital appreciation potential than those in our other  two tiers, but they’re appropriate for investors who want to generate maximum income from their portfolios right now.

GameStop (GME) put in another solid performance, and has now risen 13% over the past 30 day. I’m going to put GameStop back to a Buy rating — but caution that it is for risk-tolerant investors. 

Although it’s still high risk, for value-oriented and yield-focused investors, GME’s 6.5% yield and 6.8 P/E offer an attractive risk-reward tradeoff. 

The company is transforming from a chain of video game stores to a multi-channel technology and collectibles retailer. The new businesses are doing well, but haven’t gotten large enough yet to offset rapidly falling video game sales. 

The new businesses are doing well, but haven’t gotten large enough to offset rapidly falling video game sales yet. If all goes according to plan, revenues and earnings will start to rebound in 2018. 

GameStop will report first-quarter earnings on May 25 after the market closes. Analysts are expecting EPS of $0.66 and revenue of $1.95 billion, down from $0.66 and $1.97 in the same quarter last year. Note that the next ex-dividend date is estimated to be June 6, 2017.

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