Why GameStop Shares Are Cratering Today

Retailer GameStop (NYSE: GME  ) reported its holiday sales and provided updated guidance this morning, and Mr. Market did not like what he saw: Shares are taking a double-digit beating today.

Sales were up for the holiday period, but GameStop now forecasts fourth-quarter earnings of $1.85-$1.95 per share, significantly below its earlier guidance of $1.97-$2.14 in EPS. Analyst had expected EPS to come in at $2.14, but GameStop's forecast fell well short of that.

Motley Fool analyst Brendan Mathews thinks this is just the beginning of GameStop's pain. With the continuing rise in digital distribution of games, the company's core business of reselling used games is going to soon become obsolete. Even though GameStop shares are relatively cheap at just 11 times earnings, the threat from digital distribution is something investors simply can't ignore.

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