According to the latest r/WallStreetBets ticker sentiment for the last week on Reddit, GameStop (NYSE:GME) stock is the sixth-highest behind five excellent companies. If it were my money, I’d bet on one or more of the five before I’d lay down anything on GME stock.
Ahead of GameStop, in descending order, are Apple (NASDAQ:AAPL), Tesla (NASDAQ:TSLA), Moderna (NASDAQ:MRNA), Nvidia (NASDAQ:NVDA) and Disney (NYSE:DIS).
In some ways, I would go as far as to say that these five stocks are all you need to own to create a compelling Coffee Can portfolio of your own.
GME Stock Will Go Lower
In my most recent article about the video game retailer, I said that GameStop wasn’t worth $100, let alone twice that amount. While it might not be under $100, it is 25% since Nov. 22. That’s something.
I hate that this POS stock is trading for 2.2x sales when so many better retail stocks are going for peanuts.
| Company | P/S |
| Amazon (NASDAQ:AMZN) | 3.8x |
| Dick’s Sporting Goods (NYSE:DKS) | 1x |
| Lululemon (NASDAQ:LULU) | 5.5x |
| Bath & Body Works (NYSE:BBWI) | 2x |
| Williams-Sonoma (NYSE:WSM) | 1.8x |
| Target (NYSE:TGT) | 1.1x |
| Apple | 7.6x |
So, four out of these seven retail stocks are cheaper than GME on a P/S basis despite seriously outgunning the meme stock on a free cash flow basis. For my money, I’ll take companies with a capacity to generate free cash flow over any Chewy (NYSE:CHWY) wannabe.
Here’s what I mean.
| Company | FCF yield |
| Amazon | -0.13 |
| Dick’s Sporting Goods | 13.5% |
| Lululemon | 1.7% |
| Bath & Body Works | 0.7% |
| Williams-Sonoma | 9.9% |
| Target | 5.1% |
| Apple | 3.5% |
| GameStop | -0.87% |
To buy GameStop now, you are paying more for free cash flow than any of the seven names listed above. That makes no sense whatsoever. The only reason Amazon’s yield is negative is that it spent $56.9 billion in capital expenditures over the past 12 months, up from $40.1 billion in 2020 and $16.9 billion in 2019.
Amazon spent like crazy over the last year to ensure its business kept moving forward. But, of course, that doesn’t happen without “big picture thinking” from management.
“[W]e expect to incur several billion dollars of additional costs in our Consumer business as we manage through labor supply shortages, increased wage costs, global supply chain issues, and increased freight and shipping costs—all while doing whatever it takes to minimize the impact on customers and selling partners this holiday season,” Amazon CEO Andy Jassy stated in its Q3 2021 press release.
“It’ll be expensive for us in the short term, but it’s the right prioritization for our customers and partners.”
If you use its 2020 FCF of $25.9 billion, its FCF yield increases to 1.5%.
So, while I understand buyers of GME stock are betting on the future potential of GME under the Chewy god (Ryan Cohen), the here and now pay the bills.
The Coffee Can Portfolio
Let’s consider the performance of the five stocks receiving greater attention from WallStreetBets commenters than GME. These returns are through Dec. 1:
| Company | Five-year return (annualized) | YTD return |
| GameStop | 49.4% | 854.5% |
| Apple | 43.8% | 24.8% |
| Tesla | 97.6% | 55.2% |
| Moderna | N/A | 197.3% |
| Nvidia | 70.4% | 140.9% |
| Disney | 8.4% | -22.5% |
There are two things most investors would take away from the table above:
- Disney’s poor returns in 2021 were severely affected by Covid-19 and a slowdown in new Disney+ subscribers.
- GameStop’s 2020 return (excluding dividends) was 210%. Year to date, it’s up 855%. The stock’s cumulative performance from Dec. 1, 2016, through Dec. 31, 2020, was -6%. I’m confident that all five stocks above had better returns during this period.
As they say, it’s amazing what a year can do.
So, if you are going to speculate on GME, perhaps it makes more sense to allocate one-sixth of your investable capital for each of the six stocks listed above, including GME.
The Bottom Line
I walked by an EB Games store in my local mall the other day in Nova Scotia. And while I understand the company is rebranding all of its Canadian stores to the GameStop name in the months ahead, no amount of lipstick will change the fact its stores are dated and hideous looking.
It will cost GameStop a chunk of its $1.78 billion in cash at the end of July to get people in the store other than gaming nerds. And maybe even those people will turn their noses up at the current vibe.
In the end, if you bought GameStop when you had AAPL, TSLA, MRNA, NVDA and DIS as possible alternatives, you’ll have nobody to blame but yourself when GME stock flames out. And it will flame out.
This time next year you’ll be able to buy it for much less than $100.
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.