What a day Thursday turned out to be for shares of GameStop (GME) , which soared 44% on about 9x average volume. The catalyst was the announcement of a deal with Microsoft (MSFT) , which in a nutshell will help GME standardize the company's business operations through MSFT's cloud-based solutions and expand GME's video game offerings. In a press release, the company summed it up by stating that the partnership would render GME as the "ultimate gaming destination".
Yesterday's move sent GME shares to a two-year high, putting shares up a whopping 122% year-to-date, and into second place among best performers in my Tax Loss Selling Recovery Portfolio. But there's likely more behind yesterday's move than just the MSFT deal itself. Short interest in the name is massive, reportedly at 136% of the company's share float. It's been costly to source shares to sell short. For instance, the lending rate yesterday for GME shares through Charles Schwab's securities lending program was 17%, and that was down from 18%. So, yesterday's news, seen as a positive for the company, was likely further fueled by short-covering, all of which led to a 44% gain.
Elsewhere, Carnival (CCL) reported fourth quarter results, and saw revenue fall 99.5% to $31 million. Passenger ticket revenue was $0, not a surprise but still a bit shocking to see in print, another stark reminder of the crippling effects of this pandemic. The restart of the industry continues to be pushed further into the future. CCL itself has cancelled all November and December cruises from the U.S. with the exception of those from Miami and Port Canaveral. I'll be surprised if those ships leave port but time will tell, and hope springs eternal.
CCL could be a value investors dream, trading at .76x tangible book value, but that clearly does not tell the whole story. Tangible book value has fallen from $30.92 to $20.43 since last year's Q4, but that's the tip of the iceberg (no pun intended). Net debt has nearly doubled during that period, from $9.6 billion to $18.2 billion. Through secondary offerings shares outstanding are up 31% to 903 million, which means significant shareholder dilution. The company had about $8.2 billion in cash on the books at quarter end, which should keep it afloat (pun intended) for quite awhile given an estimated $500 million quarterly cash burn rate.
However, the entire story here is predicated on a return to operations, and we still don't know when that will occur, and to what extent. The wildcard, in my view, assuming this pandemic will end in the near future, is the level to which consumers will feel safe about getting on a floating city with thousands of other passengers. Still too much uncertainty for my blood, although I hope the industry can return to "normal". Over the years, cruising has turned into a wonderful and cost effective way to travel, and it would be a shame to see the industry die out.
(Microsoft is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells MSFT? Learn more now.)
