Is it truly "Game Over!" for GameStop (NYSE:GME)?

Watching the stock tumble 16% in the wake of third-quarter earnings, it's apparent that Wall Street thinks so -- and it's no mystery why. Lulled into complacency by the company's record of posting quarter after quarter of gangbusters growth, investors (including yours Fool-y) were surprised to see sales growth drop into the single digits Wednesday, and profits drop ... period.

And yet, GameStop still managed to move $1.7 billion in box-sized virtual entertainment sales last quarter. While profits fell 10% on a GAAP basis (to $0.28 per share), they appear to have exceeded by a penny Wall Street's estimate of $0.37, pro forma. (Pro forma, in this case, means what profits would have been if GameStop had incurred no "merger-related costs, foreign currency fluctuations, and debt extinguishment expenses.")

Considering that the year-ago numbers were inflated by sales of the then-just-released Halo 3 for Microsoft's (NASDAQ:MSFT) Xbox, and that we're in the middle of a recession that Goldman Sachs is calling the worst since the Great Depression, and barreling toward what Wachovia predicts will be 9% nationwide unemployment … well, perhaps a little bit of weakness shouldn't have come as a surprise.

The real surprise, to my mind, is that business remains as brisk as it is. Software giants Electronic Arts (NASDAQ:ERTS) and Activision Blizzard (NASDAQ:ATVI) are still churning out new titles, and GameStop management believes it will still end this year with sales up more than 20% year over year, and profits up a robust 30% or better.

The real surprise is that Wall Street thinks performance like this is worth a measly 7.1 times projected earnings (of $2.45). For a 20% grower, that's just insane. For a 20% grower in a recession -- well, I'm flummoxed. I just don't know what word can describe the level of past-insanity implied by GameStop's current valuation.

Honestly, the only word that comes to mind is: "Buy."

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