We have maintained our long-term Neutral recommendation on
) with a target price of $31.00, as risk reward remains fairly
balanced for the stock at this juncture.
Why the Reiteration?
GameStop is well positioned to take the advantage of the
growing market for video game products and PC entertainment
software. The company's strategy is to evolve through store
expansions in favorable localities, by providing the largest
title collection of video games and by leveraging its
first-to-market distribution network to offer the latest hardware
and software releases.
The company holds a significant position in the used video
game products market and provides a greater selection of used
video game products for both current and previous generation
platforms. This has largely helped the company to remain afloat
amid the challenging environment as the market for used video
game products has been resilient to the recent economic
Despite these positives, GameStop forecasted a tough first
half anticipating lower sales. The company expects a sales
decline of 6% - 8.5% for the first quarter of fiscal 2013 with
comparable-store sales to decrease between 5.5% and 8%. For
fiscal 2013, the company expects sales to remain flat or decline
by 8%, and comparable-stores sales to be in the range of negative
6% to positive 1.5%.
Further, the video game industry is highly competitive, and
video game shoppers now have many alternatives to buy software,
hardware, and game accessories for video game systems and
personal computers. Alongside, retail heavyweights such as
Wal-Mart Stores Inc
Best Buy Co., Inc
), have entered the video game market. It is apprehended that
these larger retailers could dent GameStop's sales and
Currently, shares of GameStop maintain a Zacks Rank #3
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