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Why GameStop (GME) Is Falling Today

Tickers in this article: GME MSFT SNE

NEW YORK (TheStreet) -- GameStop fell 19.3% to $36.57 Tuesday after the video game retailer issued a downside guidance for its fourth quarter.

The retailer's guidance sees earnings per share at the high end of between $1.85 and $1.95 a share, below the Capital IQ Consensus Estimate of $2.14 a share.

Despite the downside guidance, sales increased for GameStop in the 2013 holiday sales period. Global sales totaled $3.15 billion for the period, a 9.3% increase over the same period in 2012. Those numbers are in part thanks to a 99.8% increase in new hardware sales driven by the new Microsoft Xbox One and Sony PlayStation 4.

Hardware sales helped offset new software sales which declined 22.5% in the period. Pre-owned sales increased by 7%, however. Gross margins for pre-owned sales are expected to range from 46% to 49% in the fourth quarter. The company also saw a 4.8% increase in sales in the "Other" category, which includes a 23.8% increase in mobile revenue to $94.8 million.

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 several positive factors, 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 7.6%. 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 98.89% 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 3.63%.