Is GME Able to Sustain its Profitability?

Large-cap meme stock GameStop is down -4.3% during this morning's trading session, while the S&P 500 moved -1.0%. With last year's reported gross margins at 22.4%, you might be wondering if today's drop is an opportunity to pick up shares of a profitable company at a discount.

Gross margins give insight into the basic economics of the company' product line and its pricing power in the target market, yet it's essential to balance this with a review of GameStop's operating margins. Operating margins take into account the company's fixed overhead costs, in addition to the cost of revenue used to calculate gross margins.

Is GameStop plagued with bloated overhead expenses that are eating away at an otherwise profitable business? Or is the company currently unprofitable because it is in a growth phase? A combined analysis of both gross and operating margins can help answer these questions, so that you understand what kind of business you are investing in.

Date Reported Revenue ($ k) Cost of Revenue ($ k) Gross Margins (%) YoY Growth (%)
2022-03-17 6,010,700 -4,662,900 22 -12.0
2021-03-10 5,089,800 -3,830,300 25 -16.67
2020-03-12 6,466,000 -4,557,300 30 0.0
2019-03-13 6,466,000 -4,557,300 30 7.14
2018-03-15 8,547,100 -6,062,200 28 -9.68
2017-03-09 7,965,000 -5,465,100 31
Date Reported Total Revenue ($ k) Operating Expenses ($ k) Operating Margins (%) YoY Growth (%)
2022-03-17 6,010,700 -1,709,600 -6 -20.0
2021-03-10 5,089,800 -1,514,200 -5
2020-03-12 6,466,000 -1,922,700 0
2019-03-13 6,466,000 -1,922,700 0 -100.0
2018-03-15 8,547,100 -2,031,900 5 -16.67
2017-03-09 7,965,000 -1,998,600 6

Despite the negative operating margins in the last year, GameStop's average is still positive, indicating that the company is generally profitable. There's a red flag, however, indicating that the last year could be part of a negative trend. GameStop's operating expenses are growing at an average rate of 2.7%, whilst its revenues have a flat growth trend.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.