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Bear of the Day: Game Stop (GME)

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There’s been a ton of action in equity markets since the election. We’ve seen a great deal of inflows into sectors like financials, industrials and healthcare. What we haven’t seen too much of is retail names with great earnings. That’s not a strike against the US consumer but rather an indictment on the American mall. Some brick-and-mortar retailers are having a tough time dealing with the rapidly changing behaviors of consumers. You can put today’s Bear of the Day in that spot in a very ironic way.

Gamestop (GME - Free Report) operates as an omnichannel video game retailer. It sells new and pre-owned video game hardware; physical and digital video game software; pre-owned and value video game products; video game accessories, such as controllers, gaming headsets, memory cards, and other add-ons for use with video game hardware and software; and digital products, including downloadable content, network points cards, prepaid digital and subscription cards, and digitally downloadable software. The company also sells mobile and consumer electronics, including smart phones, tablets, headphones, and accessories, as well as pre-owned smart phones; personal computer (PC) entertainment software in various genre.

At the surface you’d think that gaming is a great place to be. However, there’s a growing problem with this video game retailer. Developers have been cutting out the middle man of retail. Microsoft’s (MSFT - Free Report) Xbox, Sony’s (SNE - Free Report) Playstation, and certainly PC have portals where gamers can download new games without leaving the comfort of their own homes. Further, as gamers shift away from console gaming to computer gaming, it puts further strain on Gamestop. Also, downloading removes the secondary market for games, a big part of Gamestop’s business.

The stock is a Zacks Rank #5 (Strong Sell) because of bearish analyst activity over the last sixty days. Seven analysts have dropped their earnings estimates for the current quarter while eight have done so for the current year. The bearish behavior has dropped our Zacks Consensus Estimate from 56 cents to 47 cents for the current quarter and slashed our current year numbers from $3.99 to $3.72.

Investors looking for other stocks in the same industry can check out Zacks Rank #1 (Strong Buy) Best Buy (BBY - Free Report) .

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