Gaming gains at GameStop (GME)

"It sells video games in all formats: personal computers, PlayStation 3, Xbox, GameCube, Wii and Nintendo DS, among others.

"Despite the recession that started over a year ago, video games are selling at record levels. Industry sales topped $21.3 billion last year -- and surpassed $5 billion in December alone.

"GameStop has successfully created what it calls 'GameStop Nation,' a massive audience of players made up of thousands of local game communities around each store.

"And the economic downturn isn't slowing them down. Retailers worldwide are plagued by shortages of Wii consoles, for example, even though the manufacturer has boosted production several times.

"GameStop recentlly boosted its fourth-quarter earnings per share outlook and said it expects profits to rise as much as 22% this year. Moreover, the company says its market is still expanding rapidly, noting that nearly half of new gamers are over 35 years old and 40% are female.

"Despite its healthy market and attractive prospects, shares of GameStop are down more than 50% over the past year.

"Many companies, especially those that are highly leveraged or in a weak competitive position, deserve that kind of drop. But not GameStop. In our view -- and especially from these levels -- the company is offering more excitement to shareholders than customers."

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