It's a double-edged sword when a company announces that it doesn't have enough supply to meet demand. If you're talking about an industrywide shortage affecting a company like Florida Rock
But if it's for a product that requires the expenditure of discretionary income, then the company caught with its pants down could be in big trouble. This is what happened at GameStop
GameStop's recent numbers have been sensational, including a 23% increase in comparable store sales. The business itself seems to be doing fine. What the stock price does from here, however, will depend, in part at least, on this supply problem. Right now, the stock is at $19 a stub and earnings are expected to come in at $1.16 a share this year and $1.37 a share next fiscal year; that's nearly 20% growth, and gives a PEG ratio less than one. And trailing P/E, for what it's worth, is a modest 19.
While having a PEG ratio just under 1 might normally indicate only a moderate undervaluation, PEG isn't a very complete measure. My gut feeling is that GameStop would be trading at a measurably richer valuation were it not for the supply issue. Perhaps that's stating the obvious, but informed investors willing to bet on their hunches might be looking at an attractive entry point for this stock.
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Fool contributor Lawrence Meyers owns none of the stocks mentioned here, and neither should you unless you've researched them first.