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Bear Of The Day: GameStop (GME)

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The gaming industry is rapidly evolving, with the next-generation of gaming underlined by mobile devices, and augmented/virtual reality (AR & VR). Local video game shops no longer have the appeal they did as physical video games are no longer a necessity. GameStop (GME - Free Report) and its cohorts are on their way out, and this firm’s stock price reflects this. EPS estimates for GME have been trending down, pushing this stock into a Zacks Rank #5 (Strong Sell).

GameStop was a staple in the gaming community for years, with new video game debuts inciting hordes of dedicated gamers to line up outside, ensuring they secured a copy before it was sold out. The video game market continues to soar, but GameStop has been unable to adapt to the rapidly changing landscape. People no longer have any need to go to the store to buy their games. Everything is now done online through a marketplace portal on your console, PC, or mobile device. GameStop is another brick-and-mortar victim of the retail apocalypse.

Recent Performance

GME hit its all-time high at the end of 2007 of $63.30 then took a nosedive during the great recession, which is expected for any consumer-discretionary retailer, but this stock never fully recovered. The shares hit another high of $56.50 at the end of 2013, but have since broken down. Today GME is trading at less than a tenth of its 2013 price.

GameStop Corp. Price, Consensus and EPS Surprise

GameStop Corp. Price, Consensus and EPS Surprise

GameStop Corp. price-consensus-eps-surprise-chart | GameStop Corp. Quote

In the last 52-weeks GME has lost over 70% of its value, and still I see no price at which I would purchase these shares. GameStop debt is in junk bond territory, and I only see this trend continuing as the companies antiquated business model eventual fizzles into bankruptcy.

GME has had an adverse price action from the last 6 quarters due to misses on estimates and soft guidance. GameStop is slipping into quarterly losses. Analysts are anticipating a continued drop in sales and income for the projected years to come. The company has been forced to put on increasingly more debt every quarter in order to maintain its current operations, which is not a sustainable strategy.

The only segment in GameStop’s Q3 report that saw growth was collectibles, which now makes up over 13% of its sales in Q3. The company is slowly turning into an antique shop.

GameStop has closed over 600 stores since the end of 2014 (10% of total store count), and more are closing ever quarter.

Take Away

GameStop is a quintessential retail apocalypse business. The company has been unable to adapt to the digitalizing economic landscape. I see these shares as toxic and would stay away.

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