Benzinga | Sep 8, 2021 10:48AM EDT

GameStop's Return on Invested Capital Insights

Benzinga Pro data, GameStop (NYSE:GME) reported Q1 sales of $1.28 billion. Earnings fell to a loss of $40.80 million, resulting in a 317.02% decrease from last quarter. GameStop earned $18.80 million, and sales totaled $2.12 billion in Q4.

Why Is ROIC Significant?

Earnings data without context is not clear and can difficult to base trading decisions on. Return on Invested Capital (ROIC) helps to filter signal from noise by measuring yearly pre-tax profit relative to invested capital by a business. Generally, a higher ROIC suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q1, GameStop posted an ROIC of -4.33%.

It is important to keep in mind that ROIC evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

Earnings data without context is not clear and can difficult to base trading decisions on. Return on Invested Capital (ROIC) helps to filter signal from noise by measuring yearly pre-tax profit relative to invested capital by a business. Generally, a higher ROIC suggests successful growth of a company and is a sign of higher earnings per share in the future. In Q1, GameStop posted an ROIC of -4.33%.

It is important to keep in mind that ROIC evaluates past performance and is not used as a predictive tool. It is a good measure of a company's recent performance, but does not account for factors that could affect earnings and sales in the near future.

For GameStop, a negative ROIC ratio of -4.33% suggests that management may not be effectively allocating their capital.Effective capital allocation is a positive indicator that a company will achieve more durable success and favorable long-term returns; poor capital allocation can be a leech on the performance of a company over time.

Upcoming Earnings Estimate

GameStop reported Q1 earnings per share at $-0.45/share, which beat analyst predictions of $-0.83/share.