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Why GameStop (GME) Stock Is Up After-Hours Thursday

NEW YORK (TheStreet) -- GameStop (GME) was gaining 1.8% to $37.55 in after-hours trading Thursday after beating analysts' estimates for earnings in the first quarter thanks to continued interest in new consoles.

The video game retailer reported earnings of 59 cents a share for the first quarter, beating the Capital IQ Consensus Estimate of 57 cents a share by 2 cents. Revenue grew 6.4% year-over-year to $1.99 billion in the quarter. Analysts expected revenue of $2.03 billion for the quarter.

The increase in revenue was thanks to continued demand for the Sony (SNE) PlayStation 4 and the Microsoft (MSFT) Xbox One following their respective launches in November.

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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, attractive valuation levels, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel these strengths outweigh the fact that the company has had sub par growth in net income."

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

  • GME's revenue growth has slightly outpaced the industry average of 4.6%. Since the same quarter one year prior, revenues slightly increased by 3.4%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • GME's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.36 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Specialty Retail industry and the overall market on the basis of return on equity, GAMESTOP CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • GAMESTOP CORP's earnings per share declined by 12.1% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, GAMESTOP CORP turned its bottom line around by earning $3.02 versus -$2.23 in the prior year. This year, the market expects an improvement in earnings ($3.66 versus $3.02).
  • You can view the full analysis from the report here: GME Ratings Report

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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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