Wednesday, May 27, 2009

Gamestop Stopped

A good question to ask yourself is, "What will I be if I'm forced to stop being what I was before?"

That <-- is a 3-year chart of video game retailer Gamestop. The company reported earnings last week and took down estimates for the remainder of the year by a lot, a move that shocked all the growth-at-any-price cabal who were crowded into the stock ahead of the quarter.

My gut is that Gamestop might not be a growth stock any more, and physically going to a bricks-and-mortar store to get a game might have hit the downside of the s-curve, or at least the peak. There are too many options now, most of which are obvious. Cell phone-based games are exploding. Computer-based games are having some kind of resurgence. Our Wii has internet access and I know I bought extra memory. I'm not sure why the kids can't buy downloaded games there.

The last bastion for in-the-store game purchases looks like it will be the handheld gaming devices. My boys, who are 10 and 11, don't shop/browse in stores for games any more. They know from online research and Game Informer and Nintendo Power magazines what they will buy before they get to the store. Might as well order it online.

The stock is cheap on next year's earnings. If I'm right those numbers are too high, though. Since the company chose to take numbers down aggressively rather than fighting it leads me to believe that they might have a plan. We'll see.

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