Editor's Note: TheStreet ratings do not represent the views of TheStreet's staff or its contributors. Ratings are established by computer based on metrics for performance (which includes growth, stock performance, efficiency and valuation) and risk (volatility and solvency). Companies with poor cash flow or high debt levels tend to earn lower ratings in our model. NEW YORK ( TheStreet) -- GameStop (NYSE: GME) has been upgraded by TheStreet Ratings from hold to buy. The company's strengths can be seen in multiple areas, such as its solid stock price performance, increase in net income, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and good cash flow from operations. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity.
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- Powered by its strong earnings growth of 69.29% and other important driving factors, this stock has surged by 36.17% 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 company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Specialty Retail industry average. The net income increased by 49.5% when compared to the same quarter one year prior, rising from $174.70 million to $261.10 million.
- GAMESTOP CORP reported significant earnings per share improvement 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 swung to a loss, reporting -$2.23 versus $2.44 in the prior year. This year, the market expects an improvement in earnings ($3.15 versus -$2.23).
- GME has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.41 is very weak and demonstrates a lack of ability to pay short-term obligations.
- Net operating cash flow has slightly increased to $428.70 million or 3.62% when compared to the same quarter last year. Despite an increase in cash flow, GAMESTOP CORP's cash flow growth rate is still lower than the industry average growth rate of 46.78%.
-- Written by a member of TheStreet Ratings Staff