GameStop in Neutral Lane - Analyst Blog


Being the global leader in retailing software, hardware, and game accessories for video game systems and personal computers, GameStop Corporation (GME) is better positioned than its competitors for the economic recovery. The stock is poised to surge once the economy rebounds and demand improves.
 
GameStop is well positioned to take advantage of the growing market for video game products and PC entertainment software. The company's strategy is to grow through store expansions in favorable localities, by providing the largest title collection of video games, and by leveraging its first-to-market distribution network to offer the latest hardware and software releases.
 
The company provides a greater selection of used video game products for both current and previous generation platforms.
 
The Grapevine, Texas based company, GameStop, expects to generate adequate operating cash flows in the coming years, to fund opening of new stores, revamp of stores, buyout plans as well as share repurchases.
 
GameStop recently notified that its board of directors has approved $500 million for additional repurchases, of which $300 million will be earmarked for repurchase of shares and $200 million for buyback of Senior Notes. The recent share buyback program underscores the company's target to improve return on invested capital by 400 basis points in the next four years.
 
The video game industry is highly competitive, and video game shoppers now have many alternatives to buy software, hardware, and game accessories for video game systems and personal computers. Retail heavyweights such as Wal-Mart Stores Inc. (WMT), Target Corporation (TGT) and Best Buy Company Inc. (BBY) have also entered the video game market.
 
Moreover, consumers' increasing accessibility to video games and PC entertainment software over the Internet could hit the sales of new and used video games, and impede future growth.
 
Given the pros and cons we prefer to be Neutral on the stock. Moreover, the Zacks #3 Rank, which translates into a short-term ‘Hold' recommendation, correlates with our long-term view.

 
BEST BUY (BBY): Free Stock Analysis Report
 
GAMESTOP CORP (GME): Free Stock Analysis Report
 
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WAL-MART STORES (WMT): Free Stock Analysis Report
 
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