Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Why GameStop Stock Is One of the Most Shorted Stocks Today

Watch stocks you care about

The single, easiest way to keep track of all the stocks that matter...

Your own personalized stock watchlist!

It's a 100% FREE Motley Fool service...

Click Here Now

It has been a tough year for retail stocks. That is, unless we're talking about video game retailer GameStop (NYSE: GME  ) . Shares of GameStop stock have rallied so far this year, with the stock up more than 46% year to date. However, not everyone is optimistic about the stock's future. In fact, GameStop stock is now one of the top 25 most shorted S&P 500 components. Is the bear case accurate or is there more to the GameStop story?

Let the games begin
Short-sellers betting against GameStop stock may be generously rewarded. Fundamental weakness in the company's business model and changes in the broader gaming industry will likely hurt GameStop over the long run. Specifically, the retailer's resale business accounts for about half of its gross profit. This could cripple GameStop in the future as next-generation gaming devices become incompatible with used games.

As fellow Fool Rick Munarriz pointed out last month, new chips used in Sony's upcoming PS4 devices are configured to be incompatible with older games. While new gaming consoles from both Sony and Microsoft (NASDAQ: MSFT  ) should spur a rise in same-store-sales at GameStop stores, they could also undermine physical game sales.

A rise in mobile devices has resulted in a more digital gaming industry, which means download sales could soon trump those of physical games. In fact, Microsoft's next-generation Xbox will likely require an active Internet connection in order to run, according to gaming industry magazine Edge.

GameStop continues to roll out new initiatives aimed at the digital market, including in-store kiosks featuring downloadable content. Unfortunately, I'm not sure this will be enough to make up for GameStop's eroding resale business. Ultimately, I believe the shorts will prevail and GameStop stock will come crashing back to earth.

Play it safe
Perhaps shares of Microsoft would be a better play for long-term investors. Unlike with GameStop, the video game industry isn't Microsoft's only source of income.

With the release of its own tablet, along with the widely anticipated Windows 8 operating system, Microsoft is looking to make a splash in this booming market. In a new premium report on Microsoft, a Motley Fool analyst explains the opportunities and challenges facing the company today. Additionally, the report includes regular updates as key events occur, so make sure to claim a copy of this report now by clicking here.

Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2407758, ~/Articles/ArticleHandler.aspx, 9/25/2016 4:59:56 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated 1 day ago Sponsored by:
DOW 18,261.45 -131.01 -0.71%
S&P 500 2,164.69 -12.49 -0.57%
NASD 5,305.75 -33.78 -0.63%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/23/2016 4:01 PM
GME $28.19 Down -0.08 -0.28%
GameStop CAPS Rating: **
MSFT $57.43 Down -0.39 -0.67%
Microsoft CAPS Rating: ****