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GameStop (GME) posted what I thought was a mediocre third quarter. Total sales went up about 8%, and earnings per share increased a few pennies to 31 cents. When you think video games, you think growth. That doesn't feel like growth, does it? Not the kind that sends a stock to the moon, certainly. Furthermore, same-store sales saw a decrease of 7.8%, driven by lackluster hardware transactions. Indeed, we may be hitting a point in the console cycle where the demand for systems from Sony (SNE), Microsoft (MSFT), and Nintendo (NTDOY) has essentially been satiated.
Here's the big question on the mind of traders: unimpressive Q3 or not, should GameStop be bought now?
Back in September, I discussed GameStop's trading potential. It hasn't done much since then, but I believe the stock may still be worth considering.
In fact, this week, I tried to buy some shares of the retailer. Unfortunately, my limit order was never filled. Too bad, because I could have been out very quickly on the earnings news (lately, when I've been trading, I've been looking for 50-cent moves).
The way I see it, acquiring GameStop on a pullback might be useful for both short-term players and longer-term participants alike. Activision Blizzard's (ATVI) new Call of Duty title is raking in the bucks, and the publisher's launch of the Tony Hawk reboot, on a very anecdotal level, is doing better than I expected. I'd have to assume that this will bode well for the stock. In addition, as others have pointed out, Christmas shoppers looking to be frugal for the holidays might check out the chain's used software offerings.
Admittedly, the market isn't endorsing my thesis. GameStop is hardly moving today. Wall Street doesn't believe in video games right now.
Nevertheless, I will revisit GameStop on the next drop in share price. With what I believe are a good set of catalysts for it to go higher, I think investors need to keep this one on the list.
Disclosure: I own Activision Blizzard; positions can change without notice.
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