GameStop (GME) faced big declines in the past few years as the threat of digital downloads, mobile gaming and weaker consumer spending hung over the stock like a black cloud. There also were rumblings that the big video game companies would start cracking down on used games — a big part of GameStop’s business.
But then relief swept in this year as the next generation of gaming consoles, including the PlayStation 4 and the Xbox One, decided to pass on safeguards that would prohibit used titles. That news, followed by a few better-than-expected earnings reports, lifted GME stock dramatically in 2013.
Of course, the short-term pop from decent earnings and new console launches is nice… but cannot last. Brick-and-mortar retail generally remains threatened, but video gaming in particular faces an uphill battle as titles can be downloaded directly to tablets or even to Xbox gaming consoles. Why even visit your local GameStop if you’re a gamer?
GME stock has already started to crumble, giving up about 20% in the last month or so around earnings despite a good run for the broader market. The reason was a poor holiday sales outlook — and that says it all.
If GameStop can’t hit its numbers immediately after the launch of new Sony (SNE) PlayStation and Microsoft (MSFT) Xbox consoles, during the shopping-centric holiday season … then investors should really question if this stock has staying power.
If you’re still holding after the recent declines, sell GME stock now.