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Is GameStop (NYSE: GME) a Buy?

Written By Jeff Siegel

Posted August 21, 2015

I don’t know much about video games.

At least not the kind kids play today.

Growing up in the 1980s, I spent my video game-playing time at the local arcade, where I would wait in long lines that stretched out the door of the neon-lit mall cave called “Replay.”

Two floors of video games and pinball machines kept this place humming, even on Sundays when nothing else in the mall was open. Yes, back in the day when the local mall became an echo chamber every Sunday in order to comply with regulatory nonsense.

In any event, Ms.Pacman was my game. I played it often. Well, at least as much as I could. After all, there was a two-play limit at Replay because so many kids wanted a crack at those pesky multi-colored ghosts and pixelated edible dots.

atariOf course, if you couldn’t get to the mall, there was always your Atari 2600. It wasn’t as good as the arcade (because there were girls there), but on a rainy summer day, an hour or two of Space Invaders and Dig-Dug in between Capri Suns was a good time.

But like I said, these days, I don’t know much about video games.

I tried to take an interest a few years ago, but it was all so complicated. A friend of mine actually showed me the supplement book that came with his latest video game. A book? I need to read a 200-page book to play a video game?

No thanks.

Although I will tell you, despite my inability to care about today’s modern video games, I’m always happy to profit from other folks that love them.

A Quick Double

Back in 2012, a colleague of mine who specializes in tech stocks convinced me to buy a few shares of GameStop (NYSE: GME). Again, I knew nothing about modern video games or the companies that make or sell them, but he’s a pretty smart guy, so I took his advice.

I took a small position in March of 2012, paying about $24 a share. Here’s how that worked out …


Now I’ll be honest, I don’t typically buy stocks like GameStop. That was a rare buy for me, but a very fortunate one, too. So over the years, I’ve continued to follow GameStop, and this morning I read a very interesting article that piqued my interest.

According to a survey GameStop recently conducted, 92% of gamers own at least one video game disc he or she no longer plays.

Now why does this matter?

Because GameStop buys and sells used video games. In fact, these used games represent the company’s largest profit source. So if used video games aren’t coming in as fast as they used to (and I’m not saying that’s the case at all), I’d be curious to know how this will effect future revenues.

The company announces quarterly results next week, so I guess we’ll soon find out. As of now, net sales are expected to remain flat while earnings are expected to inch up a bit.

Piper Jaffray has a $56 price target on GME going into earnings. The stock’s currently trading at around $45. Other analysts covering the stock include:

  • Wedbush – $52 price target
  • SunTrust – $58 price target
  • Oppenheimer – $51 price target