Why GameStop (GME) Stock Is Gaining Today

NEW YORK (TheStreet) -- GameStop (GME) was gaining 4.8% to $38.66 Friday after strong consoles sales helped the video game retailer beat estimates for earnings in the first quarter.

The video game retailer reported EPS of 59 cents a share for the first quarter, beating analysts' estimates of 57 cents a share by 2 cents. Revenue grew 6.4% from the year-ago quarter to $1.99 billion. Analysts surveyed by Thomson Reuters expected revenue of $2.03 billion for the quarter.

Comparable store sales were up 5.8% year-over-year in the quarter, and new hardware sales were up 81.1% thanks to the new Sony (SNE) PlayStation 4 and Microsoft (MSFT) Xbox One. New software sales grew 20.4% in the quarter, and used game sales rose 5.3%.

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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

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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