Hopefully you remembered to short [[GME]]. The real break occurred yesterday, but, what a nice follow through today.

So, still shortable? Entry is not as desirable, but if this hooker is getting the dreaded multiple contractions, then there is room left.

This is a weekly chart since IPO. I include the PE ranges because I am concerned with investor expectations, which are easily reflected via the multiple.

The business is great and I can’t really short GME on the fundamental side.

Right now, the price “says” we are nearing a top of the console cycle and that video games, having elastic demand, will sell less during a recession. So, growth is slowing and estimates are “lofty.” If those two things are incorrect, or don’t come to fruition, then GME is a great buy here.

Maybe I am biased because I caught a quick double in the name in 2007, but the used game business is still high margin and essentially competition free. Games are still popular and consoles in high demand. Who will come in and snatch that from them? [[wmt]] and [[tgt]] tried to copy the model and stopped after a year or so, due to egregious failure.

Games will be a secular bull market basically forever and I have a hard time picturing GME failing to capitalize on this trend over a long term period. The management has proven their ability to execute thus far. This is the type of stock which, as much as it is possible to predict such a thing, will be a decade long growth story, even if shitty near term.

Continuing on the theme of secular trends, my major concern is downloadable games. My roommate downloaded a game directly to his PS3 and it cost him $20 less than buying a hard copy. That trend will become a more viable threat to GME’s model in coming years than in years past. Downloading games not only limits sales within the store, but it eliminates a lot of the higher value trade ins by removing them from the trade-in market. The only games that can be downloaded are the ones which resell for the highest price, which are the highest margin.

It should be noted however that afterwards he did take his old games to GME to trade in and buy a new controller. They gave him like $15 for one PS3 game he bought 6 months ago for $60. GME will resell it for twice that ($30).

GME hasn’t had a PE of 20 since it began its uptrend in earnest in April 2005.

I am hesitant to say “get long GME here at 45 odd,” however “cheap “due to the weakness and uncertainty in the broader markets. It looks broken but still is holding weekly support. You made quick money short, but strong support is at 44. The economy has headwinds and maybe there is some doubt that this retailer deserves a +30 PE. Weighings the pros vs. cons, I feel more bullish that bearish, despite the “no Xbox” headline risk.  I am not at the “back up the garbage truck” stage though.

More on those PEs…

The trough PE for the last few years is 25ish and that’s where were at right now.

2008: $1.77*26.76 = $45.76

2009: $2.21*20.7 = $45.76

However, the problem with that cursory analysis is the estimates used. While [[msft]] not having enough Xbox’s to satisfy demand is a high quality problem for GME (all things considered) estimates will likely come down and therefore so will the stock.

My personal style is to buy stocks that go up, not pick value at the bottom. That said, GME is near “cheap” in my book and approaching the point where I would consider buying for the longer term.

Earnings are March 27th, estimate is $1.11 on 2.874b