Foolish Forecast: Will GameStop Pop?

All year long, gaming retailer GameStop (NYSE: GME  ) has trounced earnings expectations -- but the game's not over yet. We've still got one more report to get through before GameStop can claim "high score" for the year. Those Q4 2007 results are due out tomorrow.

What analysts say:

• Buy, sell, or waffle? Seventeen analysts play GameStop, which garners 11 buy ratings and six holds.
• Revenue. On average, analysts expect to see quarterly sales rise 25% over last year's fourth quarter to $2.89 billion.
• Earnings. Profits are predicted to shoot up 36% to $1.12 per share.

What management says:
Uh, $1.12, huh? Interesting -- that's almost exactly what management told us to expect last month. In February 2008, pre-announced fourth-quarter profits of $1.11 to $1.12 were released, bringing the company's total take to $1.77 or $1.78 for the year. According to management: "in spite of temporary industrywide video game system shortages, preliminary comparable store sales [growth] for the fourth quarter exceeded our expectations and came in at a very strong 17.4%." And if you think that's good, it could be even better. Commenting on the news last month, fellow Fool Rick Munarriz pointed out that "analysts have been humbled by sticking to the company's conservative guidance in the past." Read all about it here, but esentially, Rick thinks that price cuts by Sony (NYSE: SNE  ) and Microsoft (Nasdaq: MSFT  ) on their gaming consoles may be helping to drive higher sales at GameStop. Hefty spending on a new marketing push -- tagline: "Power to the Players" -- probably hasn't hurt either.

What management does:
Speaking of which, here's a new tagline GameStop could adopt when marketing itself to investors: "We make it up on volume." Gross margins at the retailer have been dropping steadily for more than a year. But the bigger GameStop gets, the better it looks further down the income statement, where both operating and net margins advance relentlessly upward. GameStop's operating margins retain their comfortable lead over more diversified rival retailers Amazon.com (Nasdaq: AMZN  ) , Best Buy (NYSE: BBY  ) , Circuit City (NYSE: CC  ) , and Wal-Mart (NYSE: WMT  ) .

Margins	7/06	10/06	2/07	5/07	8/07	11/07
Gross	29.0%	29.0%	27.7%	27.3%	26.6%	25.8%
Operating	5.8%	5.8%	6.4%	6.5%	6.5%	6.6%
Net	2.3%	2.4%	3.0%	3.1%	3.2%	3.5%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
As wonderfully as GameStop has been performing as a business lately, its stock price has performed ... well, a bit short of wonderfully the past few months (although it is up nearly five times in value since Motley Fool Stock Advisor first recommended it). Commenting on the disconnect between business and stock in January, Nick Kapur of Stock Advisor asked rhetorically: "What the heck is the problem? ... The store continues to live up to its potential and is performing well. A number of high-profile titles are making their way to GameStop's real and virtual shelves this quarter, so we don't expect this nice growth to taper off soon."

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