Will GameStop Rebound?

With shares of GameStop Corp. (NYSE:GME) trading at around $23.19, is GME an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

GameStop is facing some challenging times. If you’re looking for good news, then you won’t find much. However, we’ll give it a shot. GameStop is seeing strong digital growth and momentum in mobile. Furthermore, the Forward P/E is 6.76 and there are more analysts on the Buy side than on the Sell side. If you want to hang your hat on those factors, then feel free, but it’s recommended that you take a look at the bad news as well. And prepare to read the following words often: down, decline, drop.

There were a few new games released heading into the holiday season, but there were no fresh releases. In other words, almost everything was a rerelease. It looks as though the gaming industry is going the way of Hollywood, or perhaps the iPad. The approach is to attempt to make sales by releasing new versions of old products, or games. This might work for a while, but it will eventually fail and anger consumers. Where are innovation, creativity, and risk-taking? Without them, the gaming industry is lost.

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As you might have guessed, holiday sales for GameStop were weak. For the holiday season, sales were down 4.6 percent. Sales of new games dropped 5.1 percent. New hardware sales were down 2.7 percent. Same-store sales were down 4.4 percent. Internationally, same-store sales were down 6.4 percent. For Q4, GameStop expects same-store sales to decline 4.7 percent. Full-year same-store sales are expected to drop by 7.5 to 9 percent, which is higher than the original expectation of 6 to 9 percent.

Let’s take a look at some more important numbers. Hopefully, they offer a little more reason for optimism.