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.
