As a counter to the poorly done Motley Fool article here are some facts ...
The transition from the past generation (PS2, and XBOX) has been a tough one for developers and console manufacturers. System complexity translated into high console price points, and even higher development costs. Games came out looking impressive, but offered little in the form of truely new game experiences. But the development teams have caught up with this new generation of technology and by doing a little research on Metacritic you can see the products being released this year are substantially better than those released in '07.
One of the best examples is the new Madden title which now runs at double the frame rate and looks fantastic. As a result despite lower sell in number, retailers have reported increases in sales versus last year. Bottom line the games are getting better ..!
Not only do the games look and play great, but the size of the gaming industry has unexpectedly grown thanks to Nintendo. The new highly accesible Wii has increased the number of people playing games in a way Microsoft and Sony never expected. From this perspective an investment play on the content side makes alot of sense since you wouldn't be tied to a single platform. An investment in GameStop or another retailer covers all the platforms. Even specific publishers got burned on this one like EA who put bigger investments in XBOX 360 and PS3 games than they did in the Wii.
It is true you can play this from two sides, you can bet on a publisher or you can bet on a retailer. but a retail bet protects you from implementation screw-ups and delayed product launches and helps you capture any un-expected successes. Retail plays also carry some inventory protection since many retailers send back unsold product or negotiate mark-downs through the game publishers. GameStop is particularly appealing since it is a pure video game play and does not carry baggage from under-performing sectors like home audio, dishwashers, and PC.
Take-Two .. are you kidding? There is a reason the stock dropped to 15 after years of horrible management, and limited product depth. Look at product sales across their line-up, sports reviews are getting pummeled by EA's new games and Bio-Shock was a great game but it is a single title not an established multi-year franchise.
Apple .. I like the software play, but they are a long ways from having iPhone software sales contribute in a material fashion to their bottom-line.
Digital distribution is a short term pipe-dream. Despite current gen consoles having the ability to download content they are not designed to replace disk distribution with digital distribution .. their hard drives are too small, downloads take too long and consumers like to have physical product. It is much faster to drive to the store and buy a product than try and download it even on broadband, and I don't have to worry about losing invisible digital licenses. Digital DRM is causing huge problems for publishers right now ... read the articles about the Spore release. Maybe this will get fixed on the 'next' generation of consoles.
"Best Buy .. space to expand" is that because the rest of their inventory isn't selling? There is no way the game industry which would love to move to digital distribution if it could is going to start regularly stocking a wide variety of large boxed retail packages (like Guitar Hero.) Software distributors want less packaging and less plastic .. not more. Look at what has happened to Toys "R" Us and you will see that large shelf space toys may be a great business for China but not for US distrbutors who carry the inventory risk.
I can't say whether or not GameStop's aggressive growth potential justifies its' relatively high multiple, but the support for the article was thin and shoddy at best.
Bottom line: This is a BROKEN STOCK, not a broken company. They beat quarter after quarter (in the face of an economy going down the toilet, yet analysts keep estimates high to rig the game) and the naysayers always say "yeah, so you got lucky that one time, betcha can't do it again", or something else negative. GME's PR department needs to be replaced, no insiders are buying the stock and their are no buybacks coming. This company needs to go private. What other company regularly beats by a huge amount each earnings call and the stock tanks 7-10% on the news?
"They beat quarter after quarter (in the face of an economy going down the toilet, yet analysts keep estimates high to rig the game) and the naysayers always say "yeah, so you got lucky that one time, betcha can't do it again", or something else negative."
That's the problem....people are waiting on it to fail. The best earnings in thew world aren't going to drive the stock price higher this fact is apparent. The negatives out there have very high probabilities for becoming true even though they have yet to hinder. That alone will keep this stock on a downward path. This years holiday season might be it's peak for growth rate. From there competitive force and such will take it down. The future as good as things seem now isn't bright. Handcuff it to a 10/11 current PE and then some may take on the future risk above that betting against the trends is a mistake.