Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, video game retailer GameStop (NYSE: GME ) has received a distressing two-star ranking.
With that in mind, let's take a closer look at GameStop's business and see what CAPS investors are saying about the stock right now.
GameStop facts
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Headquarters (Founded)
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Grapevine, Texas (1994)
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Market Cap
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$3.09 billion
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Industry
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Electronics stores
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Trailing-12-Month Revenue
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$9.67 billion
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Management
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CEO J. Paul Raines (since 2010)
CFO Robert Lloyd (since 2010)
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Return on Equity (Average, Past 3 Years)
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15.9%
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Cash/Debt
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$395.8 million / $249.2 million
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Competitors
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Amazon.com (Nasdaq: AMZN )
Best Buy (NYSE: BBY )
Wal-Mart (NYSE: WMT )
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Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.
On CAPS, 7% of the 3,200 members who have rated GameStop believe the stock will underperform the S&P 500 going forward. These bears include All-Star Gordogato, who is ranked in the top 10% of our community, and rjzii.
Earlier this year, Gordogato touched on the digital headwind working against GameStop:
Game publishers are heading in the direction of selling games through direct download, cutting out middleman sales outlets like GameStop. ... Bricks-and-mortar stores selling games will disappear in the coming years, and bigger stores can sell the hardware more efficiently than the smaller chains like GME.
Over the next five years, in fact, GameStop is expected to grow its bottom line at a rate of 8.5% annually. That's slower than main online threat Amazon (27.5%), as well as big-box retailers Best Buy (10%), and Wal-Mart (10.4%).
CAPS member rjzii elaborates on the bear case:
GameStop is a company that is facing three problems: digital distribution of median (e.g. games), online sales, and growing hostility from game publishers in regards to after market sales. The first two problems might be something that GameStop can overcome. ...
However, one longer term concern for GameStop is sales of previously owned games and the growing hostility form game publishers to it. ... Since one of the cornerstones of GameStop's business is the sale of previously owned games, the devaluation of purchased games through the use of one time codes will directly impact the amount of money GameStop can get on their sales. While this might not be enough to cause major problems now, if the trend continues it is definitely something that they will need to contend with.
What do you think about GameStop, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!
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