I will give some nuance to the things I wrote. For GME I estimated a value in the range of $12-17 per share by using an EV / FCF multiple of 8-10 times the average FCF over the period '16-'19. I just picked something in between, hence the $15 per share. However, I would consider selling around the $12, assuming no share repurchases happen.
Now about the buybacks... I was thinking the following, please correct me if I made a mistake! Assuming GME uses $200 mln to buyback their shares at say $6 per share, they obtain about 30 mln shares. If these are retired, the current outstanding amount of 90 mln shares is lowered to about 60 mln. Now I use that the fair value of the commons is at the lower end of the range, so about $12 per share. This implies that every dollar used to buyback shares has increased in value from $1 to $2, i.e. $1 of value is created in the process. Hence, the total $200 mln buy back created an additional $200 mln. This latter amount is now represented by the 60 million shares left, thus creating additional value of a little more than $3 per share. Adding the $3 per share to the valuation ex share repurchases gives $15-20$.
According to shortsqueeze.com the short interest in GME is above 75% with a short interest ratio (days to cover) of 9. So in case that a buyback occurs in combination with the uptick in '20-'21 FCF, some kind of short squeeze occurs propping up the stock to at least its fair value within a smaller amount of time, with a higher annualized return as a consequence.
Nya |
