Why GameStop's Shares Plunged

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of video-game retailer GameStop (NYSE: GME  ) fell 10% today after releasing earnings.

So what: Sales fell 12% to $2 billion, falling short of estimates, as same-store sales fell 12.5%. Earnings were $0.54 per share, two cents better than expected, but the company's prediction of earnings between $0.10 and $0.18 in the second quarter fell well below expectations, and the stock is down as a result.

Now what: For quite some time, GameStop has been a company on the decline, but the pace is staggering at this point. The game-console cycle and a lack of blockbuster games are hurting results, and by the look of the forecast, management doesn't expect it to get better. Shares trade at less than six times the current year's estimates, but I'm not falling into this trap today. A retailer in decline isn't a good bet, and as much as I like games, I don't see a turnaround in GameStop's fortunes.

Interested in more info on GameStop? Add it to your Watchlist.

Fool contributor Travis Hoium has no position in any company mentioned. You can follow Travis on Twitter at @FlushDrawFool, check out his personal stock holdings, or follow his CAPS picks at TMFFlushDraw. The Motley Fool owns shares of GameStop. Motley Fool newsletter services have recommended writing covered calls on GameStop. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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