Is it truly "Game Over!" for GameStop
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
The real surprise, to my mind, is that business remains as brisk as it is. Software giants Electronic Arts
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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