GameStop (GME) vs. Aeon (AONNY): Analyzing Which Specialty Retailer Is a Solid Buy for 2024

In this piece, I evaluated two notable specialty retail stocks, GameStop Corp. (GME) and Aeon Co., Ltd. (AONNY), to determine the superior investment for 2024. Prior to delving into the highlighted stocks, let’s examine the economic landscape and its potential impact on the specialty retail sector.

The U.S. economy showcased remarkable resilience in the third quarter, surpassing earlier estimates. Despite elevated inflation and heightened borrowing costs earlier in the year, GDP surged at an annualized rate of 5.2% from July through September, indicating robust economic growth.

Furthermore, the inflation metric, gauging price shifts in a basket of goods and services, marginally ticked down to 3.1% for the 12 months that ended in November. The recent CPI report aligns closely with economists' projections, providing additional evidence that high inflation is gradually receding.

Moreover, current consumer spending appears robust. According to Adobe Analytics, Black Friday and Cyber Monday sales this year were record-setting. Consumers spent $38 billion from Thanksgiving to Cyber Monday, up 7.8% annually. Even adjusted for inflation, Adobe said growth was "driven by net-new demand, not simply higher prices."

Anticipating the upcoming holiday season, Americans are projected to spend an average of $975 on Christmas or other holiday gifts this year, an uptick from the October estimate of $923, as per a Gallup survey.

Gallup's director of U.S. social research, Lydia Saad, said, "The increase could reflect consumer interest in retailer promotions that kicked off ahead of Black Friday."

Additionally, the University of Michigan reported a 13% surge in its consumer sentiment index, reaching 69.4. The shift reflects a reduced concern about inflation and increased optimism across various matters. Remarkably, this halted the preceding downturn and reversed the decline, restoring the sentiment index to its August levels.

Increased consumer spending injects vitality into the specialty retailer industry, driving higher sales and revenue. This surge in demand is expected to foster business growth, enhance profitability, and allow specialty retailers to expand their offerings, innovate, and create a more robust market presence.

That said, the global specialty retailers market is expected to reach $42.70 billion by 2031, growing at a CAGR of 4%.

In terms of price performance, GME has surged 21.4% over the past month, while AONNY gained 2.7% during the same period. However, GME witnessed an 11.7% plunge over the past three months, while AONNY gained 3.7% over the same duration.

Additionally, GME declined 32.9% over the past year, closing the last trading session at $15.22, whereas AONNY has gained 3% during the same period, closing the last trading session at $21.21.

But which Specialty Retailers stock could be a better pick? Let's find out.

Recent Financial Results

For the third quarter that ended October 28, 2023, GME’s net sales decreased 9.1% year-over-year to $1.08 billion. Its gross profit declined 3.4% from the year-ago value to $281.80 million. Also, the company’s cash inflow from operating activities reduced by 89.2% from the prior year’s period to $19.10 million.

Furthermore, GME’s free cash flow decreased 93.2% year-over-year to $11.10 million.

For the six months that ended August 31, 2023, AONNY’s operating revenue grew 5% year-over-year to ¥4.71 trillion ($32.38 billion). Its gross profit increased 6.6% from the year-ago value to ¥1.17 trillion ($8.04 billion). Also, the company’s profit attributable to the owners of the parent rose 29.3% from the prior year’s period to ¥23.32 billion ($160.24 million).

In addition, as of August 31, 2023, AONNY’s current assets amounted to ¥7.94 trillion ($54.59 billion), up from ¥7.68 trillion ($52.79 billion) as of February 28. 2023.

Past and Expected Financial Performance

Over the past three years, GME’s revenue increased at 3.4% CAGR. In addition, its total assets grew at a CAGR of 6.6%.

Analysts expect GME’s revenue to decline 7.3% year-over-year to $5.50 billion for the fiscal year ending January 2024. Similarly, the company’s revenue for the next fiscal year (ending January 2025) is expected to decrease 4.5% from the prior year to $5.25 billion.

AONNY’s revenue increased at a 2.9% CAGR over the past three years. Its EBITDA and normalized net income grew at a CAGR of 6.5% and 9.3%, respectively. Furthermore, the company's total assets rose at a 4.4% CAGR during the same time frame.

For the fiscal year ending February 2024, AONNY’s revenue is expected to significantly increase year-over-year to $63.37 billion. Additionally, the company's revenue for the next fiscal year (ending February 2025) is expected to be $65.49 billion, up 3.3% from the previous year.

Valuation

In terms of trailing-12-month Price/Sales, GME is trading at 0.81x, 189.3% higher than AONNY, which is trading at 0.28x. Moreover, GME’s trailing-12-month EV/Sales of 0.70x compares with AONNY’s 0.55x. Furthermore, GME’s trailing-12-month Price/Book ratio of 3.68x is 46% higher than AONNY's 2.52x.

Profitability

AONNY’s trailing-12-month revenue is 11.2 times that of what GME generates. Moreover, AONNY is more profitable, with a trailing-12-month gross profit margin of 36.90%, compared to GME’s 24.10%. Also, AONNY’s trailing-12-month EBITDA margin and net income margin of 6.13% and 0.29% compare with GME’s negative 0.22% and negative 0.14%, respectively.

POWR Ratings

GME has an overall rating of D, which equates to a Sell in our proprietary POWR Ratings system. Conversely, AONNY has an overall rating of B, translating to Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. GME has a D grade for Stability, justified by its 24-month beta of 1.83. In comparison, AONNY has a B grade for Stability, consistent with its 24-month beta of 0.07.

In addition, GME has a C grade for Quality,  which is consistent with its mixed profitability. Its trailing-12-month CAPEX/Sales of 0.68% is 77.6% lower than the 3.04% industry average, whereas GME’s trailing-12-month cash per share of $2.98 is 28.4% higher than the industry average of $2.32.

On the other hand, AONNY has a B grade for Quality, which is in sync with its higher-than-industry profitability. The stock’s trailing-12-month CAPEX/Sales and trailing-12-month cash per share of 4.31% and $9.39 are 33.5% and 450.7% higher than the industry averages of 3.23% and $1.70, respectively.

Of the 44 stocks in the Specialty Retailers industry, GME is ranked #36, while AONNY is ranked #3. 

Beyond what we've stated above, we have also rated both stocks for Growth, Value, Momentum, and Sentiment. Click here to view GME’s ratings. Get all AONNY ratings here.

The Winner

The specialty retail sector is expected to thrive owing to the U.S. economy's resilience, marked by strong GDP growth, easing inflation worries, and robust consumer spending. It is anticipated that improved consumer attitudes would support the industry even more, encouraging higher revenue, sales, and market expansion.

Against this backdrop, AONNY stands out as a superior investment choice compared to GME. AONNY boasts superior financial performance, heightened profitability, greater stability, and a more attractive valuation, making it a compelling buy in the current landscape.

Our research shows that the odds of success increase when one invests in stocks with an overall rating of Strong Buy. View all the top-rated stocks in the Specialty Retailers industry here.

What To Do Next?

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AONNY shares were unchanged in premarket trading Wednesday. Year-to-date, AONNY has gained 1.42%, versus a 22.95% rise in the benchmark S&P 500 index during the same period.

Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.

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