GameStop (GME): The number one video game retailer in the world

If keeping up with the latest video games stands high on your list of priorities, there is an outfit in Grapevine, Texas that makes it easy. It has stores around the world and operates a pair of web sites, too.

GameStop Corporation (NYSE: GME) is the world's largest video game and entertainment software retailer, offering software, hardware and game accessories for the PC, as well as video game systems from Sony (NYSE: SNE), Nintendo (NTDOY) and Microsoft (NASDAQ: MSFT). The firm also owns two e-commerce sites and Game Informer magazine, a leading video and computer game publication. GameStop operates 4,954 retail stores worldwide. Amazon.com (NASDAQ: AMZN) and Best Buy (NYSE: BBY) are competitors.

The company surprised investors last week, when it reported Q2 EPS of 14 cents and revenues of $1.34 billion. Analysts had been expecting 9 cents and $1.19 billion. The CEO said, "Our second quarter performance was very broad-based, with the U.S., Canada, Australia and Europe all exceeding expectations." Management also guided Q3 EPS to 19-21 cents (18 cent consensus), FY08 EPS to $1.45-1.48 ($1.46 consensus) and FY08 revenues to $6.38-$6.49 billion ($6.45B consensus). Two brokerages subsequently declared the issue a "strong buy" and three others said "buy". Price targets were set in the range $52-60.

The stock popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Altogether, brokers now recommend the shares with eight "strong buys", seven "buys" and three "holds". Analysts expect a 32% growth rate, through the next year. The GME Price to Sales ratio (1.31), Sales Growth rate (38.92%) and EPS Growth rate (366.67%) compare favorably with industry, sector and S&P 500 averages.

Institutions own about 90% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past twelve months, it has traded between $20.97 and $49.84. On Tuesday, it closed at $46.42. Should you decide to invest, let early volatility pass and consider a stop-loss of $41.50.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.