A Bull Case for GameStop

Investors don't love GameStop (NYSE: GME  ) . The stock has a one-star rating on Motely Fool CAPS, for instance. At the same time, people -- well, maybe not the high-end, hedge fund investors -- love the company. The same CAPS system has 88% of all players rating the company as an outperformer -- the discrepancy comes from the weighting system that CAPS uses to rank stocks.

The gap between what everyone thinks, and what investors think, has been bad news for those same investors this year. The company's stock is up 105% year to date. I don't think it's done, and here's why.

All the glorious shining silver linings
At the end of this year, Microsoft (NASDAQ: MSFT  ) and Sony (NYSE: SNE  ) are both releasing their new gaming systems. Preorders for the Xbox One and PlayStation 4 have been strong, with many retailers already selling out months ahead of the drop dates. GameStop is one of the many retailers that have sold out online, setting them up for an excellent influx just in time for the holidays.

Last quarter, comparable sales dropped like a stone, down 10.7%. That's better than the company thought, but by no means good. Looking ahead, the company is expecting third-quarter sales to jump, rising between 11% and 15%, year over year.

That's because not only is the holiday season loaded with new stuff, the third quarter is, as well. Grand Theft Auto V, Battlefield 4, and Madden 25 are all out, or on the way. To make things even easier for gamers and for GameStop, some of those titles are offering customers the option to pay to upgrade to Xbox One or PlayStation 4 versions of the game after those consoles are released. That means more money now, and more money later.

That pesky cloud
That's all an excellent end to 2013, and it means that GameStop almost has to get in its own way to not make money -- which could happen. What it doesn't address is the elephant that's no longer in the room. That's because the elephant is now being delivered digitally, and that's not really GameStop's strongest suit.

Digital distribution has the potential to destroy GameStop's used-games business. Right now, that business accounts for over a third of total revenue. In the early days of the Xbox One, Microsoft made moves toward changing the used-games business in major ways. As it turns out, it would have allowed for interesting sharing options, but that got lost in the general fury.

At some point, Microsoft and Sony are going to change things, and GameStop is going to have to change right along with them. So far, there hasn't been a great answer as to what GameStop's shift is going to look like. At some point, that needs to happen, and the later GameStop waits, the more sway Microsoft and Sony are going to have in the change.

Overall, GameStop looks well set for the end of this year, and maybe, even through this iteration of consoles; but the future is fuzzy. That doesn't mean that it won't figure it out. I happen to like GameStop's long-term potential, but right now, that's largely faith. Not everyone has that.

Not every company requires as much faith
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