Benzinga - Hedge fund manager Whitney Tilson is left impressed with one company that he previously listed as among the stocks to avoid.
So, which is the company, and what has changed between January 2022 — the timing of his previous assessment — and now?
What Happened: Tilson, in January 2022, handpicked 12 stocks and branded them as “Dirty Dozens,” signaling these are stocks that should be avoided. A year from then, these stocks are down an average of 60% versus a 12% drop for the S&P 500 Index, with nine of them losing more than half their value, he noted.
GameStop Corp. (NYSE: GME), which was part of the “Dirty Dozen” group, has lost 32% in the past year, making it the second-least-worst performer, he noted. The relative outperformance was made possible due to the 35% rally seen on Wednesday, following the electronics and gaming accessories retailer’s better-than-expected fourth-quarter results, Tilson said.
“GameStop is a much healthier business today than it was at the start of 2021," said CEO Matt Furlong on a call with the analyst, Tilson said. “We have a path to full-year profitability,” Furlong added.
Tilson noted that the company did not offer any guidance for 2023. Very few analysts currently cover the so-called meme stock, which has fluctuated wildly over the past two years, he said.
Pat In Back For C-Suite: “I have to tip my hat to management,” said Tilson. The company has done an excellent job stabilizing a sinking ship, as evidenced by the strong fourth quarter, he said.
The fund manager noted that the company generated a net profit of $48 million, primarily from the year-over-year reduction of inventories from $915 million to $683 million. Also, the company generated a “phenomenal” $338 million operating cash flow during the quarter versus only $11.6 million in capital expenditures, he added.
“While much of yesterday's [Wednesday's] pop was likely due to short sellers getting squeezed and rushing to cover their position, there has been a material improvement in GameStop's prospects,” the analyst said. The improvements still do not make the stock a buy, he said.
“But it's no longer a good short, so I'm removing it from my Dirty Dozen,” Tilson said.
Photo: Courtesy of Wikimedia Commons
Price Action: GameStop shares were slipping 0.44%, to $22.48, according to Benzinga Pro data.
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