GameStop Corp. shares have left the S&P 500 in the dust in 2021, generating a year-to-date total return of 1,060 percent.
Earnings
A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value.Growth
Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.6. GameStop’s forward earnings multiple of 1,481.9 is more than 70 times higher than the S&P 500’s, making GameStop’s stock look overvalued.GameStop’s forward PE ratio is also nearly 50 times higher than its consumer discretionary sector peers, which are averaging a 30.2 forward earnings multiple.
Yet when it comes to evaluating a stock, earnings aren’t everything.
The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is about 0.9. Once again, without positive earnings, GameStop doesn’t have a positive PEG ratio to use as a valuation gauge.
Price-to-sales ratio (PS) is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is 3.15, well above its long-term average of 1.62. GameStop’s PS ratio is 2.97, slightly below the S&P 500 average. GameStop’s PS ratio is also up 986.7 percent over the past five years, suggesting the stock is priced at the high end of its historical valuation range.
