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TheStreet Open House

Why GameStop (GME) Is Down Today

NEW YORK (TheStreet) -- GameStop  (GME) was falling 4.8% to $37.84 at 9:53 a.m. on Tuesday amid reports that Wal-Mart  (WMT) would restart its video game trade-in business.

Wal-Mart announced Tuesday that the program would begin on Wednesday, March 26. The retail giant said customers can trade in old video games in exchange for gift cards applicable towards any Walmart or Sam's Club purchase, both in stores or online. The program will be available at more than 3,100 Walmart stores in the U.S. and will accept games from the Sony PlayStation 3 and Microsoft  (MSFT) XBox 360.

The move could prove extremely problematic for GameStop, which uses a trade-in program as a key part of its business strategy in its nearly 6,500 stores. The company reported in its third-quarter results in January that pre-owned sales increased 7% to $567 million during the 2013 holiday season, which accounted for 18% of all holiday sales. GameStop also expects gross margins for the pre-owned category in the range of 46% to 49% for both the fourth quarter and full fiscal year.

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TheStreet Ratings team rates GAMESTOP CORP as a "buy" with a ratings score of B-. TheStreet Ratings Team has this to say about their recommendation:

"We rate GAMESTOP CORP (GME) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance, reasonable valuation levels, good cash flow from operations and compelling growth in net income. We feel these strengths outweigh the fact that the company shows low profit margins."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 7.3%. Since the same quarter one year prior, revenues rose by 18.8%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 111.41% and other important driving factors, this stock has surged by 44.71% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, although almost any stock can fall in a broad market decline, GME should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
  • The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Specialty Retail industry. The net income increased by 111.0% when compared to the same quarter one year prior, rising from -$624.30 million to $68.60 million.
  • Net operating cash flow has significantly increased by 80.29% to $680.60 million when compared to the same quarter last year. In addition, GAMESTOP CORP has also vastly surpassed the industry average cash flow growth rate of -19.02%.
  • You can view the full analysis from the report here: GME Ratings Report

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

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