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The Bull Case For GameStop, Guidance Shortfall Notwithstanding

Brett Hershman

GameStop Corp. (NYSE: GME) shares crashed following a fourth quarter sales miss and guidance that fell well below estimates.

GameStop also announced it will no longer provide EPS and same-store sales guidance to reduce investor distraction while the company looks to diversify itself.

Loop Capital is sticking with its Buy rating and $28 price target on the stock. Q4 net sales decreased 13.6 percent to $3 billion, and comparable stores sales fell 16.3 percent, a huge drop despite strong early Nintendo Co.,Ltd(ADR)(OTC: NTDOY) Switch results that saw the company’s initial stock of the hardware selling out in two days.

New video game hardware, software and accessories sales numbers all fell in the double-digit range. GameStop management attributed weak video game sales to disappointing AAA titles, earlier than usual software discounting, and a 15 percent year-over-year decline in average hardware selling prices.

A bright spot for the company? Technology brands and collectibles, which both grew 43.9 percent and 27.8 percent year over year respectively.

“We were disappointed by GameStop’s F2017 diluted EPS guidance, which we think adds additional fuel to the fire of the digital disintermediation bear thesis. We were also a bit surprised given the strong early Switch results,” Loop Capital said.

“All that said, once normalized for likely share repurchases management’s diluted EPS forecast is much closer to our prior expectations. Thus, with GameStop trading at 7.0x our revised F2017 diluted EPS estimate and sporting well over 6% and 10% dividend and free cash flow yields, respectively, we are sticking with our Buy rating.”

Related Links:

The Bright Spot In GameStop: Collectibles

Diversification Could Be The Power-Up GameStop's Strategy Needs Now

Image Credit: By BentleyMall (Own work) [CC BY-SA 3.0], via Wikimedia Commons

Latest Ratings for GME

Date Firm Action From To
Mar 2017 Wedbush Maintains Outperform
Mar 2017 Telsey Advisory Group Downgrades Outperform Market Perform
Jan 2017 Macquarie Downgrades Outperform Neutral

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