Klaus Vedfelt First, two confessions. First, I am old-fashioned. I have an excuse – I collect Social Security.
I haven’t played a computer game since Pong. I am on no social media. I’ve watched TikTok for less than two hours.
I even have a landline! Second, I still value stocks the traditional way. I start with the fact that owning a share of stock is owning the share of a business. And owning a business is primarily about making money.
So if you want to sell me your restaurant for $400,000, my first question isn’t “What’s the short interest?” Or “My guru, Mr. Kitty, suggested I buy.” Or “Let me check with my friends, who haven’t been in the restaurant business either.
” Rather, I will ask you “How much money does the restaurant make now, and what are its earnings prospects for the future?” And based on that answer, I will judge your offer for the restaurant. Of course, stocks over the short term will trade very differently from their earnings prospects, because humans are largely emotional, not rational, creatures. But over the long run, earnings prospects are the primary driver.
For example, this chart compares McDonald's' stock price and EPS over nearly two decades: company financial reports, Yahoo Finance Sources: company financial reports and Yahoo Finance Clearly a good correlation. So it seems reasonable to look at an investment in the business known as GameStop ( NYSE: GME ) in a similar manner. GameStop’s earnings history Here are GameSto.
