GMD (Game digital) published its trading update today, sending the shares down 30% at the time of writing.
The RNS contained positives:
The Board is pleased with the progress achieved on the Group’s key growth initiatives.
we expected the challenging trading environment faced in the UK retail market in the first half to continue into the second half of the financial year.
positive momentum would be highly dependent on stock availability of Nintendo Switch
A funding is on the cards:
we continue to be encouraged by the initial performance of our new in-store gaming arenas … As a result, the Group is exploring new funding arrangements to enable an acceleration of the roll-out of this new initiative.
GMD is a share owned by Woodford’s Equity Income Fund. The fund also had some disappointing news from UTW (Utilitywise) yesterday, causing the shares to fall c. 30% yesterday.
Woodford’s speculative punt shares often seem to go awry. Investors should take that as a warning: just because it’s good enough for Woodford, doesn’t mean that it’s good enough for you.
Investors may recall that GMD actually went bust once, but were able to affect something of a turnaround and refloat the company. The chart since flotation shows a sorry tale:
Frankly, I have always been puzzled as to what Woodford saw in this company. The shares peaked at over 325p, which was a figure that I could not fathom at the time. The subsequent share price action bore out my scepticism.
GMD has a Stockopedia Value score of 99 (very cheap), and a momentum score of 7 (lots of negative sentiment). Stockopedia describes it as a speculative contrarian share.
Personally, I think the company has no future. It must surely be one of the worst bricks-and-mortar retailing concepts out there. The business has already been bust once, and I see no reason for it to exist. You can easily obtains games and consoles online, and tech such as Valve will squeeze it even more.
According to Stockopedia. its TTM ROCE is 0.35%. GMD is looking to raise money. So basically, it is likely that the company will not be able to earn a return above its cost of capital, which is a recipe for shareholder value destruction.
Maybe it can stage some kind of temporary turnaround and send the shares higher from this level, I don’t know. Personally, I wouldn’t touch this one, though.