Even though I wouldn't go so far as to say that the market for game consoles and software is cyclical, there does seem to be an ebb and flow to it. And right now, we're at one of the lower points -- Sony (NYSE:SNE) is late getting its new console out, and there isn't much in the way of exciting new titles from either Electronic Arts (NASDAQ:ERTS) or Activision (NASDAQ:ATVI). Heck, the way things are going, I wouldn't be surprised to see EA Sports -- Curling 2006 as companies look to grab whatever revenue is there for the taking.
But I still like GameStop (NYSE:GME), a Motley Fool Stock Advisor recommendation. Yeah, that's right -- I like a retailer that caters to the gamer. This lull will pass, and when it does, I expect people will continue to buy new consoles, new titles, and high-margin used games as well.
Financial results for the fourth quarter are all but useless to some extent -- at least on a comparative basis -- because including the acquisition of the Electronics Boutique stores obviously boosts results. Still, there are some numbers worth paying attention to. Comp-store sales were down 0.3%, the company believes it has about a 21% share of new video game sales, and margins for used game sales jumped to 49.3%. Couple that with pretty optimistic growth forecasts and you've got a positive outlook.
I'm sure I'm going to hear from at least one person telling me that GameStop is inevitably doomed and we'll all be downloading games in the future. Here's the trouble: I've heard all this "the Internet is going to kill 'em" before. The Internet was supposed to kill the bookstore, and yet there's Barnes & Noble (NYSE:BKS) going strong. And here's the thing: Even if downloaded games do someday become all the rage, who's to say that GameStop can't play there, too?
With GameStop up so much in the last year and at a 52-week high, I'm a little more interested in game-maker Activision and maybe even a bit curious about Sony (assuming it can stop shooting itself in the foot). But even if GameStop isn't a great bargain today, I'm not going to play chicken with a freight train and say that it can't keep appreciating from here.
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Activision and Electronic Arts are also Motley Fool Stock Advisor recommendations. A free trial will give you access to more picks from David and Tom Gardner.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
