Priced for Perfection? Poppycock!

I was leafing through Barron's over the weekend, when I saw an analyst use a phrase that wears on me like fingernails against a chalkboard.

"This stock is priced for perfection," FTN Midwest Securities analyst Anthony Chukumba said, referring to video game retailer GameStop (NYSE: GME  ) .

He's wrong, on both GameStop and the silly notion that any stock is actually priced for perfection.

Game on for GameStop
I'll start by defending GameStop. How exactly is the chain priced for perfection? The stock is trading at 22 times this year's analyst profit projections, and just 17 times next year's bottom-line target. The company is growing earnings at an even faster clip, and bucking the retail trend by posting monster comps growth.

More importantly, GameStop has beaten Wall Street's guesstimates in each of the past five quarters. In other words, analysts have erred on the overly conservative side in underestimating the chain's potential in the past.

If being "priced for perfection" implies that a stock is valued so highly that it can't afford any mistakes, how does one account for stocks that surpass the flawless expectations of flawed experts?

The Barron's article hangs part of its bearish thesis on the economy, yet ignores that GameStop is pretty recession-resistant. One-fourth of the company's sales comes from reselling used games and gear. GameStop posts higher margins there than it does on selling new hardware and software. If tight times find more gamers hitting up the local GameStop in hopes of turning old games and systems into quick dough, GameStop's performance will actually improve, as the company gains an even greater inventory of higher-margin wares to sell.

More than words
The term "priced for perfection" is a myth, I argued last year. I called out analysts, financial journalists, and industry bloggers who were dead wrong after using those exact words to describe Apple (Nasdaq: AAPL  ) and Google (Nasdaq: GOOG  ) at much lower price points than today.

A Google search finds more than 13,000 instances of "priced for perfection" -- pretty laughable, in retrospect. One of my favorite bloggers called Amazon.com (Nasdaq: AMZN  ) "priced for perfection" five years ago. The stock has more than doubled since.

Barron's got a Canaccord Adams analyst to apply the same phrase to Baidu.com (Nasdaq: BIDU  ) at $324 three weeks ago. The stock has inched 10% higher since.

I'll go out on a limb and suggest that the next time that Barron's -- or anyone else -- uses "priced for perfection" to bash a stock, you should strongly consider buying. The phrase has become nearly as ironic as a horror-movie character saying, "I think we're safe now."

No stock is priced for perfection, because no stock trades at infinity. No stock is priced for imperfection, because no stock continues to trade after hitting zero. The market is a perpetual negotiator, weighing the unlimited prices between those two points.

Don't insult your audience, analysts. This cliche can be a reputation-killer.


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