When the world sees you as a lame duck retailer, no amount of near-term good news can quell the pessimism.
Shares of GameStop
Sales climbed 3.5% to $1.9 billion, fueled by a 5.3% spike in stateside comps and brisk expansion. Weakness overseas held back the 6,606-store chain, leading to GameStop narrowly missing Wall Street's top-line target of $1.95 billion.
It gets better on the bottom line, where GameStop's adjusted profit of $0.38 a share clocked in ahead of Wall Street's estimate of $0.37 a share.
It will only get better as we head into the seasonally potent holiday shopping season. GameStop is raising its earnings guidance, as it sees a profit between $1.53 a share and $1.59 a share during the final quarter of its fiscal year. The pros were perched on prognostications of $1.51 a share.
GameStop expects the comp gains to continue, and it's easy to see why. This month alone has seen the successful release of Microsoft's
But GameStop hasn't necessarily turned the corner. The global 1.1% uptick in comps doesn't even make a dent in clawing its way back from the 7.8% decline suffered during the same quarter a year earlier. It also remains to be seen if the one-two boost of Kinect and Black Ops is an isolated blessing. If gamers maxed out their disposable income, the holidays may not be as cheery.
However, the real gorilla in the game room remains GameStop's long-term viability. Digital distribution threatens to bypass all forms of physical storefronts. Whether it's the three major consoles reaching out directly to gamers or the casual-games revolution that's being spearheaded by Apple's
It also only hurts that the video game industry in general has been slumping for nearly two years.
Value investors will continue to kick GameStop's tires. At first glance, it's a ridiculous bargain at less than eight times this year's upwardly revised earnings guidance. Unfortunately, the model's long-term concerns will keep the shares from realizing their true worth based on current financials.
GameStop continues to inch higher fundamentally, but everyone knows that there's a steep drop-off after the peak.
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Longtime Fool contributor Rick Munarriz loves playing video games but he doesn't own shares in any of the companies mentioned in this story. He is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early. The Fool has a disclosure policy.