Jim Cramer talks GameStop's valuation

>>> WHEN I SEE MEME STOCKS TAKING OVER AGAIN LIKE GAME STOP AND AMC. I HAVE TO REMEMBER IT IS IRRATIONAL. IT FINISHED LOWER JUST UNDER 15. THE PEOPLE THAT ARE BUYING AND SELLING MILLIONS OF SHARES, IS GAME STOP WORTH ALMOST $20 BILLION? AT THE END OF THE DAY IT'S WORTH WHAT THEY WILL PAY FOR IT. I PREFER TO BE A LITTLE BIT MORE RIGOROUS BECAUSE I WANT SOMETHING WITH STAYING POWER. THE BEST WAY TO FIGURE OUT WHAT A COMPANY MIGHT BE WORTH IS TO COMPARE IT TO ANOTHER ONE. I THINK THE CLOSEST COMPARES TO BEST BUY. THEY HAVE A $16 BILLION MARKET CAPITALIZATION, NOT THAT MUCH HIGHER THAN GAME STOP WITH TODAY'S RIDICULOUS RUN. HOW DO THEY STACK UP? LET'S USE THE LAST FOUR YEARS. THAT WAS A VERY GOOD GAME. GAME STOP REVENUES HAVE BOUNCED BETWEEN $5 BILLION AND $6 BILLION. BEST BUY DID $43.5 BILLION IN SALES. HOW ABOUT EARNINGS? LOSING MOUNDS OF MONEY, GAME STOP MADE ABOUT $17 MILLION LAST YEAR. BY CONTRAST EVEN THOUGH BEST BUY HAS HAD EARNINGS OF THE DECLINE THEY STILL MADE $1.4 BILLION LAST YEAR. YOU COULD ARGUE THAT GAME STOP IS ON THE UPSWING WHILE BEST BUY IS LOWER BUT THEY HAVE BASICALLY THE SAME CAPITALIZATION OF MARKET FOR ELECTRONICS RETAILER SHOULD BE MAKING MORE THAN A GAME RETAILER. BEST BUY PAYS A GENEROUS DIVIDEND WELL GAME STOP PAYS NO DIVIDEND. I DO NOT SEE HOW THESE TWO COMPANIES THAT DO ROUGHLY THE SAME THING COULD BE WORTH ROUGHLY THE SAME PRICE ACCORDING TO WALL STREET. BEST BUY'S NUMBERS ARE SO MUCH HIGHER. I WOULD LOVE TO TELL YOU IT IS UNDERVALUED BUT AT BEST I CAN SAY IT IS TOO CHEAP. HOW ABOUT THE POSSIBILITY THAT GAME STOP CANNOT BE JUDGED BY ITS CURRENT STATE? WE NEED TO THINK HOW THEY CAN REINVENT THEMSELVES BY SELLING STOCK. SAY THEY COULD SELL $1 BILLION WORTH OF STOCK WHICH THE SEC WOULD PROBABLY LET HAPPEN. IF THEY HAD AN EXTRA BILLION DOLLARS THEY COULD GET OUT OF SOME BAD LEASES AND MAYBE MAKE SOME MONEY AND USE THE STOCK TO MAKE AN ACQUISITION. MAYBE THEY COULD BUY BEST BUY. I DON'T THINK ANY POTENTIAL TAKEOVER CANDIDATE WOULD BE WILLING TO ACCEPT THE STOCK DEAL OF GAME STOP AT THESE LEVELS. EVEN IF THEY DID IT WOULD CRUSH THE STOCK AND THE SHORT-SELLERS THAT ARE CURRENTLY BEING CRUSHED WOULD MAKE OUT LIKE BANDITS. THOSE THAT OWN IT WOULD HAVE EGG ALL OVER THEIR FACES BECAUSE THE STOCK WOULD BE OBLITERATED IF THEY DID A GIGANTIC OFFERING TO PAY FOR TRANSMITTING -- BECAUSE THAT IS WHAT IT NEEDS BECAUSE THE CURRENT BUSINESS IS DYING. THE MOST OBVIOUS COMPARISON SAYS GAME STOP IS OVERVALUED. THEY WILL NOT CHANGE THEIR STRIPES AND CANNOT YOU STOCK TO CJ SAID -- TO BY SOMEBODY ELSE. I CAN'T GET TO 44 FOR THAT MATTER. I SEE THIS RUNNING. THE RESPONSIBLE MOVE IS TO SAY CELL. WHAT ABOUT AMC? GAME STOP HAS A GOOD BALANCE SHEET AND TURNED A PROFIT. IT IS THAT THE STOCK IS OVERVALUED. FOR AMC, I THINK THE MOVIE THEATER CHAIN WILL MOSTLY RUN OUT OF MONEY IN 2026 WHEN THE DEBT COMES DUE. THEY SOLD SOME STOCK YESTERDAY FROM A PLAN THAT ALLOWS THEM TO RAISE CAPITAL. THE $250 MILLION THEY RAISED JUST MAKES IT EASIER FOR THEM TO PAY THEIR DEBTS. IF IT KEEPS CLIMBING THEY CAN SELL MORE STOCK WHICH IS GOOD. IT IS HOW THEY MADE IT TO BEGIN WITH. THAT IS JUST WAY TOO DAUNTING. IN THE END I THINK IT IS A DEAD MAN WALKING. YOU ARE CATCHING AMC IN THE WALKING PHASE. SELL IT BEFORE THE DEAD MAN PHASE AND YOU WILL DO JUST FINE.

Channel: CNBC Television

Views: 17,958

Keywords: CNBC, Mad Money, invest, investing, stock market, jim cramer, cramer, kramer, wall street, lightning round, investment strategy, retirement

Id: llGF9DxVGt4

Length: 4min 12sec (252 seconds)

Published: Wed May 15 2024