September 8, 2012
According to Joel Greenblatt's "Magic Formula," GameStop (NYSE: GME ) is a great buy -- high return on capital and a cheap stock at 5 times cash flow. But as Fool analyst Austin Smith notes, there are downsides to this company. GameStop has seen an 11% drop in revenue for the most recent quarter and is operating in a deteriorating environment. Retail video-game sales were down by 20% in July, and comapnies in this niche are relying on dated devices to keep them afloat in dying market. The new Wii U is the next game device on the horizon, but it's replacing a unti that's a distant fourth in popularity behind Nintendo's DS, the Sony PlayStation (NYSE: SNE ) , and the XBox. So for GameStop, the game might be over. See more in the following video.
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