Buy Gamestop (GME) while it’s cheap

Shares of GameStop Corp (Public, NYSE:GME) reached a high of $63.77 near the end of 2007 before crashing down to current levels of $40 a share. With the lineup of games coming out this year, not to mention the release of GTA4 in Q2, Gamestop shares could prove to be a lucrative investment at current levels. Let’s take a look at the lineup of games coming out in the latter half of 2008:

1. Madden NFL 09
2. Star Wars: The Force Unleashed
3. Gears of War 2
4. Rock Band 2
5. Call of Duty: World at War
6. Tiger Woods PGA Tour 09

As you can see, a lot of the big titles coming out in 2008 are sequels. This is how Gamestop makes a lot of its money, buy purchasing back games from consumers and then selling them the next big title. It’s kind of like the used car business on a micro level.

The reason why GME has had its little meltdown is because of 2008 guidance; however I believe that Gamestop may have low-balled their numbers to play it safe.

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Why set expectations that you can’t beat? It’s all part of the corporate game.

A recent note from Citigroup included:

As the premier retail destination for video gaming, we look for GME to significantly benefit from the strength of the gaming cycle, which should be confirmed at E3. The ever increasing number of casual gamers coupled with unprecedented platform diversity has resulted in a unique and protracted gaming cycle. Hardware cuts and new title announcements should continue to drive both near-term and long-term earnings for GME.

My only beef with Gamestop is their lack of inventory for hot new titles. Take GTA4 for example – if you didn’t preorder a copy, then you were out of luck. When a greatly anticipated title like that comes out, the stores should order at least a couple of hundred copies, its simple economics, supply and demand. I ended up having to go to Best Buy for my copy because the three Gamestop locations in my area were completely sold out on the first day. 

But don’t let that stop you from cashing in on Gamestop.

Article written by Eric Cheshier

Co-Founder of theStockMasters.com

If you liked this article, Eric Cheshier also contributes to the Master Picks Newsletter and the Quant Method , only available at WallstNewsletters.com.