This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

5 Investing Ideas As GameStop Squeezes Short Sellers

CHRIS LAU, KAPITALL: When GameStop (GME) broke past $30 and closed at $32.73, the short-interest, or bearish bet against the company, stood at 43.09 million shares. With 117.84 million shares outstanding, short float was a substantial 36.6%. How did short-sellers get caught off guard, especially when IDC reported sales declined 14% to 76.3 million units and NPD Group said in March 2013 that game sales declined 25%?

For GameStop, it turns out that a strong lineup of game titles for 2013 and extending throughout this year benefits the game reseller. Even though overall game sales are declining, hit titles drive profits for GameStop, game makers, and hardware game suppliers.

GameStop is up nearly 50%, outpacing the Nasdaq index as represented by the Nasdaq PowerShares ETF (QQQ) in the Kapitall chart below :

GameStop Outlook Positive

A renewal in the product cycle for consoles will benefit GameStop. Sony (SNE) is releasing a PlayStation 4 within the next 11 months, while Microsoft (MSFT) is poised to announce the successor to the Xbox 360. Nintendo (NTDOY.PK) also refreshed its Wii last year. Although sales weakened in recent weeks, the refreshed product benefits GameStop because the release improves awareness for games made for Nintendo.

In the past year, only Sony generated a positive return for shareholders. The rapid ascent in the last few months was driven by a drop in the value of the Yen, excitement for the PS4 launch, and strong Sony-made Android phones:

In March, game sales totaled $992.5 million. Take-Two’s (TTWO) BioShock Infinite led sales, beating out Activision’s (ATVI) Call of Duty. When charting the two game makers using Kapitall’s Compar-O-Matic to compare market cap to forward P/E (or “POP”), Take-Two has a much lower valuation:

Conclusion

Investors who ignored the negativity for an overall decline in game sales were right to do so. The negativity for game resellers was so strong that a short-squeeze in GameStop shares led to returns of nearly 50%. The seasonal weakness is fast approaching, and “selling in May” may once again prove itself correct. Investors could use the decline in the overall market to accumulate the companies mentioned.

Written by Chris Lau, Kapitall Contributor

null

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG

Markets

DOW 18,232.02 -53.72 -0.29%
S&P 500 2,126.06 -4.76 -0.22%
NASDAQ 5,089.3620 -1.4320 -0.03%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs