Should investors follow a GameStop board member who keeps buying more shares?
- GameStop’s director, Larry Cheng, has increased his holdings in the company by purchasing an additional 10,000 shares, signaling confidence in its future prospects.
- Cheng’s insider purchase is part of a broader pattern, including previous buys by him, Director Alain Attal, and CEO Ryan Cohen, indicating a strong commitment from the company’s leadership.
- Despite fundamental challenges and skepticism from the market, GameStop’s insiders’ bullish behavior suggests potential long-term value through innovative capital allocation strategies and a deep sense of ownership among key executives.
GameStop’s Director Larry Cheng Buys More Shares
Board member and GameStop director Larry Cheng recently expanded his holdings in the video game retailer. Filings dated April 8 indicate that Cheng purchased 10,000 additional shares of GME at prices ranging from $11.21 to $11.23 per share, amounting to a transaction value of $112,238. Adding to his existing shares, Cheng now owns 8,772 shares directly and an additional 65,088 shares through his investment holdings at Cheng Capital.
Interestingly, on the same day that Cheng purchased more GameStop shares, he posted on social media platform X an evaluation of the company investments. He emphasized the importance of projecting not only the dilution of an investor’s stake over time but also the potential increase in the company’s value, which directly impacts financial returns.
Source: X
A day later, Cheng underscored the importance of economic alignment between a company’s executives and shareholders in another tweet.
Source: X
GameStop’s Latest Insider Transactions
Trading by insiders, where company executives buy or sell shares in their own company, often serves as a signal for other investors because managers typically possess a deep understanding of the company’s performance and prospects.
When insiders purchase shares, it may indicate that those with intimate knowledge of the company are confident in its future success. This can be interpreted as a positive signal for the stock. Conversely, if insiders are selling shares, it could suggest concerns about the company’s performance or future outlook, serving as a negative signal for the stock.
Before Larry Cheng’s recent purchase, he had bought 6,000 shares along with Director Alain Attal, who had purchased 15,000 shares. Ten months ago, the two directors had also been granted 8,772 shares.
On the same occasion, GameStop’s CEO and largest shareholder, Ryan Cohen, had bought 443,842 shares, representing an investment of almost $10 million at the time. These actions provide a detailed view of the trading activities by GameStop’s senior managers.
It’s important to note that Cheng and Attal have deep connections with Ryan Cohen dating back to the days of Chewy, the company Cohen co-founded. Attal served as a Chewy executive from 2011 to 2018, while Cheng was the pet supply retailer’s first investor through his equity investment firm, Volition Capital.
Additionally, GameStop has witnessed several stock sales by top managers. Mark Robinson, the company’s General Counsel & Secretary, who has been with the company for eight years, sold 21,255 shares over the last six months. PFO Daniel Moore also sold 1,052 shares at the beginning of April.
Source: TipRanks
Should You Follow GameStop’s Insiders?
Ryan Cohen and his team have a deeply ingrained commitment to GameStop, reflecting a sense of ownership encapsulated by Cohen’s declaration, “I put my money where my mouth is.”
Undoubtedly, insiders purchasing more shares signals a profound commitment to the company and a belief that the share price is potentially undervalued. However, from a fundamentalist perspective, considering GameStop undervalued is not that easy.
Shares trade at a forward EV/EBITDA of 37.6x, starkly contrasting with the industry average of 13.3x. Looking at the company’s revenues, GameStop trades at a forward EV/sales of 0.7x, which appears inexpensive compared to the industry average of 0.9x. Yet, it also reflects the market’s skepticism regarding GameStop’s ability to grow its sales in the future.
Recently, as revealed in the company’s annual filings, two directors were appointed to participate in GameStop’s new investment policy decisions. This policy allows the company to invest its cash and equivalents in equity rather than solely fixed-income instruments.
I believe that Larry Cheng and Alain Attal, trusted board members at GameStop, are acquainted with these appointees. Together with Cohen, they will likely determine the company’s capital allocation decisions.
If insider buying at GameStop might be hard to justify from a fundamentalist and valuation standpoint, plans to utilize the company’s cash for potentially innovative ventures could generate a perception of long-term value not currently apparent to many market participants.
(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content)
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