Wednesday, December 4, 2013

Seeking Alpha: GOME's Realism On Electronics Retailing Still Not Fully Appreciated

GOME Electrical Appliances (OTCPK:GMELY) has been called China's Best Buy (BBY) in the past, even though the comparison can get a bit stretched at times. Where Best Buy is estimated to hold about 30% share of the U.S. electronics and appliance retailing market, GOME is #1 in China in consumer electronics with about 10% share. Even so, both companies had a period of serious turmoil as "growth for the sake of growth" created an inefficient store base and online competition made serious inroads into their businesses.

Whether you believe Best Buy's turnaround plan is working and will continue to work is a story for another day. What I want to focus on today is the strategic shift at GOME that has led to improved same-store sales and the way in which management views the evolution of competition and retailing in China. I believe that GOME is correct in its view that success will ultimately come down to a battle of logistics, and I think the company is ahead of its rivals in building for that reality. I do not believe that GOME will ever generate sizable FCF margins, but I do believe that modest improvement, coupled with supply chain investments that will help the company maintain its competitiveness, support a fair value almost 50% above today's level.

As a quick aside, I would encourage investors who are considering GOME shares to buy the Hong Kong-listed shares if possible (0493.HK). I realize that it can be more expensive to do so, but the liquidity on the ADRs is not very good at all.

Read the full article here:
GOME's Realism On Electronics Retailing Still Not Fully Appreciated

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