Gamestop

In my column Sunday night I revealed that I had some cash in my IRA that was waiting for the right investment to come along.  I had placed an order for Verizon Communications Inc.(NYSE:VZ) at $46.53 a share, with the expectation that VZ was not likely to go that low.  It was a placeholder order, really.

Yesterday VZ very nearly went that low.  It was down to $46.58 at some point.

However, another opportunity arose.  Or descended, perhaps. 

GameStop Corp. (NYSE:GME) is a stock that I had been looking at a year or so ago.  Its financials are healthy.  It's making money.  I know who they are and what they do.  I've bought gift-cards for nephews from Gamestop, and when I needed a different cable to attach the Wii to my new flat-screen I was able to get a used cable from Gamestop for a fraction of what it would have cost me at Best Buy.

I remember staring at GME shares in late 2012 and wondering why the stock was priced under $30, especially when it was paying a $0.25 dividend every quarter.  It was on my list of equities to buy if I had any cash on hand.  Back then I had my money tied up in equities I wasn't prepared to sell, or other opportunities came along that seemed, at the time, better than GME.

Then GME went on a tear in 2013, eventually topping out at over $57 a share in November - just 2 months ago.  Using 20/20 hindsight I wrote GME off as another opportunity missed.

Over the last couple of months the stock has come down a bit, and has fluctuated between $45 and $50 per share.  It hadn't come down far enough to really interest me, though.  Until yesterday.

Yesterday GME took a roughly 20% dive from its Monday close of $45.31 down to a Tuesday intra-day low of $36.10 per share.

Why?  Software sales are down.  This is a long-term concern.  The newest generation of gaming consoles allow gamers to download software directly from the manufacturer to the machine, meaning fewer software sales for GME.  It's a disruption for GME's business model.

GME is a disruptive business itself, though.  Used / resale is an adaptation to the market, and I suspect GME will adapt further as necessary.

Also, the used / resale space may not be sexy and may not be ultra-profitable, but it's still adequately profitable for now.  New bookstores may be dying, but used bookstores can make a living.  The same goes for used music stores.

Furthermore, GME sells hardware, and hardware sales this holiday season were up.  They sold a lot of next generation consoles - consoles that are ultimately trying to put brick-and-mortar stores out of business, true.  But GME is doing well selling the consoles and the accessories.

There is some legitimate concern about GME's ability to remain a going concern in the long run, and for that reason I don't plan to hold onto this stock forever.  I do think, however, that concern about long-term viability was already priced in, and that's what had brought GME stock back down to $45 a share.

I decided to buy.  And I had the cash.  So I did.

I purchased 115 shares of GME at $36.21 each.  It costs me $9.99 to buy and $9.99 to sell, so whenever I sell GME then I need to make at least $19.98 in profit in order to break even.  That makes $36.39 the break-even point for my 115 shares of GME.  Of course, if I still have the stock in March and it pays $0.275 per share in dividends then my break-even point goes down to $36.12 or so.

Regardless, for now my sell order is in for $45 a share.  I think the market has over-reacted on this one, and that there will be a bounce-back.

Of course, I could be wrong.  Welcome to the excitement of investing.