Michael Burry Pitches GameStop (GME)

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  • Investment manager pitches large company buyback.

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  • Michael Burry, a fund manager who shorted the U.S. housing market in 2007 and was prominently featured in the book and film The Big Short, has a new target, this time on the long side. That target is GameStop (GME), the retail outlet for consoles, video games, and accessories.

    Burry’s firm has picked up over 3 million shares of the stock, and Burry has come out encouraging the company to make a massive buyback—essentially taking the company private.

    GameStop has been a controversial holding, as the company’s core business has been in decline for years. Yet the company has a cash-rich balance sheet—with more cash than the company’s market cap right now, making a large buyback attractive. Burry also notes that the company will still benefit from the next generation of consoles that will still use optical disk drives.

    Action to take: GameStop is incredibly attractive on a valuation basis, akin to what Benjamin Graham once called a “net-net” company, with higher assets per share than the share price.

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  • With shares under $5, the company is an attractive buy. Speculators hoping for a big buyback bounce may want to consider January 2021 $10 calls, which trade for around $0.33, or just $33 per contract.