Tag Archives: GME

Forget GameStop. Buy These Five Stocks Instead

GameStop (NYSE:GME) remains very popular with the Reddit crowd. GME stock is currently the fourth-most commented stock on the WallStreetBets subreddit.

Photo of the Gamestop (GME) logo On a Mobile Phone.Source: Shutterstock / mundissima

 

It’s also incredibly volatile. 

As I write this, GME stock is up 1,112% year-to-date, but up only 8% over the past six months. As a result, anyone who bought in at its most recent highs in early June is sitting on unrealized losses of 31%. 

You can buy one share of GME that generates $86.1 million in trailing 12-month (TTM) free cash flow (FCF), or you can buy these five stocks for the same price and generate 10x the free cash flow.

It’s up to you.

The $60 Buy Instead of GME Stock

Comcast (NASDAQ:CMCSA) is the first of five stocks to buy instead of GME. It currently trades around $61 and generates $13.9 billion in TTM FCF. Assuming GameStop has 76.8 million shares outstanding, it has a $1.12 in TTM FCF per share. Comcast has $3.03 TTM FCF per share based on 4.59 billion shares outstanding.

In terms of news, Comcast’s mid-August announcement that it’s partnering with ViacomCBS (NASDAQ:VIAC) to create a European streaming service called SkyShowtime that pulls together several different television and movie libraries.

Expected to launch in 2022, it will have more than 10,000 hours of content, making it a formidable force in European streaming. ViacomCBS stock jumped more than 5% on the news. 

The joint venture makes sense for both sides. 

The $50 Buy

Acushnet (NYSE:GOLF) is the second of five stocks to buy instead of GME. It currently trades around $50 and generates $391.0 million in TTM FCF. Acushnet has  73.91 million shares outstanding for $5.29 TTM FCF per share. It trades at 9.5x TTM FCF compared to 185.7x TTM FCF for GameStop. 

Golf, the game, not the symbol, became popular during the pandemic as a way to get outside while social distancing. Acushnet has benefited from this surge in interest. It makes golf equipment, golf balls, and golf wear under the Titleist brand and golf wear and footwear under the FootJoy brand.   

Thanks to higher participation rates, Acushnet’s been able to reduce its debt levels from a leverage ratio of 2.3x in Q2 2020, at the start of the pandemic, to 0.7x at the end of Q2 2021. That’s an incredible turnaround. 

As a result, it’s not surprising that GOLF stock has a one-year total return of 43.9%. Acushnet gives you representation from the consumer cyclical sector to go along with Comcast’s contribution to the communication services sector. 

The $40 Buy Instead of GME Stock

Edgewell Personal Care (NYSE:EPC) is the third of five stocks to buy instead of GME. It currently trades around $41 and generates $215.0 million in TTM FCF. Edgewell has 54.36 million shares outstanding for $3.96 TTM FCF per share. It trades at 10.4x TTM FCF compared to 185.7x TTM FCF for GameStop. 

Edgewell is best known for its Schick and Edge shaving brands, Hawaiian Tropic sun care, and Playtex feminine hygiene products.

In the first nine months of 2021, sales and earnings increased by 5.7% and 209.1%, respectively, over the same nine months in 2020. So it doesn’t have massive growth on the top line, but it’s coming along nicely on the bottom. 

It’s a consumer defensive stock worth considering for your portfolio.

The $30 Buy

The penultimate stock selection in my group of five, Cricut (NASDAQ:CRCT), currently trades around $32 and generates $53.27 million in TTM FCF. Cricut has 222.23 million shares outstanding for $0.24 TTM FCF per share. It trades at 133.3x TTM FCF compared to 185.7x TTM FCF for GameStop. 

I hadn’t heard of Cricut until doing this exercise. Apparently, it has ridden the craft wave that’s sprung up as a result of the pandemic. In mid-August, it reported its 10th consecutive profitable quarter while revenue increased 42% over Q2 2020, and paid subscribers jumped by 77% to 1.8 million. 

 “We successfully launched two new connected machines, a new line of Smart Materials, added new features and functionality to our software platform, and saw strong growth from our top international markets,” stated CEO Ashish Arora in its Q2 2021 press release.

As gross margins climb, so too will Cricut’s overall profitability and free cash flow. As a result, this is the most interesting buy of the five, in my opinion.

 

The $20 Buy Instead of GME Stock

The final stock in my group of five is Tronox Holdings (NYSE:TROX), a company that mines, manufactures, and sells titanium dioxide (TiO2), which is used for paints and coatings. 

It currently trades around $21 and generates $397.0 million in TTM FCF. It has 143.64 million shares outstanding for $2.76 TTM FCF per share. It trades at 7.6x TTM FCF compared to 185.7x TTM FCF for GameStop. 

The company has had a strong run over the past year. YTD through Sep. 7, it’s up 43% and almost 124% over the past year. 

Tronox reported record revenue of $927 million at the end of July due to higher TiO2 and zircon average selling prices. In Q2 2021, it generated a record FCF of $150 million.   

The company believes that it’s still early in the cycle and that demand remains very strong. Representing the basic materials sector, Tronox is an interesting way to play the housing market. 

The Bottom Line

Adding up the five share prices, I get $205, about $3 less than GME. Adding up the TTM FCF of the five, I get $15.28 per share, or almost 14x GameStop’s TTM FCF per share.

GameStop might be the stock to buy to impress your Reddit friends, but you can do a lot better by spreading out your bets a little more without sacrificing investment quality.

The smart investor will take the path less traveled to profit from their investments. 

Is that you?

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

Robinhood Earnings: Expect More Volatility In HOOD Stock

Robinhood Markets (NASDAQ:HOOD) stock started its life as a public company on July 29 at an initial price of $38. After hitting a high of $85 during its first few days of trading, HOOD stock has swiftly plunged back to the $50 territory. It currently hovers at $47, around 25% above its initial public offering price.

Robinhood stocks: app logo seen on smartphone on US dollar banknotesRobinhood stocks: app logo seen on smartphone on US dollar banknotes

Source: mundissima / Shutterstock.com

Investors already question whether this selloff was an early warning for HOOD shares. Robinhood will issues Q2 earnings on Aug. 18, its first such announcement as a public company. Therefore, today we look at what investors can expect from the widely-followed stock in future weeks.

What Robinhood’s Metrics Show

In preparation for the IPO, on July 1, Robinhood filed its S-1 Registration Statement with the Securities and Exchange Commission (SEC). As of March 2021, monthly active users (MAUs) on the app were 17 million and the fully funded accounts were 18 million. A year ago, the comparable metrics had been 8.6 million MAUs and 7.2 million fully funded accounts. Another metric management uses is Average Revenues Per User (ARPU). As of March 31, 2021, it came at $137, up from $82.90 a year ago.

Further numbers for the three months ended Dec. 31, 2020, show revenues of $959 million, an increase of 245% year-over-year (YOY) from $278 million. Management noted that part of that growth was due to cryptocurrency trading. Understandably, there’s plenty of room for growth in the crypto space. And the the company is barely touching a part of this booming market.

As a result of expanding operations, at the end of 2020, Robinhood recorded a net income level of $7 million, compared to a net loss of $107 million on Dec. 31, 2019. In other words, despite the top-line growth, Robinhood has only posted a negligible profit.

Q2 Earnings Are Important for HOOD Stock

When the company issues the second-quarter results, the Street will want to see if HOOD has the essential qualities to become a robust growth stock. So far, Robinhood has had a polarizing but also a large impact on the investing community.

Around 70% of the assets under custody are from users ages 18-40, a  group with most of their investing lives ahead of them. This new breed of retail investors welcome the commission-free and easy-access structure. Robinhood’s fractional-share sales also allow retail investors to buy only a part of a share at an affordable price.

In fact, Robinhood’s business model has paved the way for traditional online brokerages like Charles Schwab (NYSE:SCHW) to also offer commission-free investing.

The WallStreetBets community forum on Reddit has also been a critical growth engine for the rapid top-line growth. Discussions on the platform, especially regarding meme stocks, word-of-mouth marketing, and referral incentives have served as an informal marketing campaign on behalf of the company.

Yet, the Street also regards HOOD stock as heavily overvalued. With a market capitalization (cap) of over $39 billion, it currently trades around 21 times current sales. Put another way, Robinhood needs higher trading volumes as well as an increasing user base to justify the current valuation. Some might even argue HOOD stock itself could become a meme stock, too.

Looming Regulatory Risks 

Regular InvestorPlace.com readers would be well aware that Robinhood faces regulatory risks in its primary stock trading business. Earlier in the year, it found itself in the crosshairs of the SEC, following operational mishaps, including data breaches and trading outages during the height of the GameStop (NYSE:GME) short-squeeze frenzy.

Robinhood generates about 80% of its total revenue via payment for order flow (PFOF), a source of controversy on Wall Street. The broker is compensated for forwarding trade orders to market-maker intermediaries that may not always provide investors with the best possible price.

The company recently paid a $65 million fine, as the SEC decided it “made misleading statements and omissions in customer communications.” Moreover, PFOF is banned in Canada and the U.K. In other words, Robinhood would not be able to expand its current brokerage model overseas.

The Bottom Line on HOOD Stock

Robinhood has created a new breed of investors, leading to significant top-line growth in the process. However, potential investors should keep in mind that the market has high expectations from Robinhood, which might already be priced into the share price.

If the company fails in its expansion efforts or faces further regulatory setbacks, HOOD stock could easily come under further pressures. With stiff competition ahead, I believe Robinhood’s immediate risks currently overshadow its potential rewards. Therefore, interested investors might want to wait for a decline toward the $40-$42 level before hitting the “buy” button.

However, despite short-term choppiness, Robinhood is likely to be a winner in the long-run as it expands its user base for both equity and crypto trading. It could even find itself as a takeover candidate.

On the date of publication, Tezcan Gecgil did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.