Trade of the Day: GME Stock Powering Up for a 20% Run

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GameStop Corp. (GME) — Although this is a mid-cap stock, it is the largest U.S. video game and PC entertainment software retailer in the United States and has about 6,700 stores worldwide.

Capital IQ predicts sales will rise 3.2% in fiscal 2016 (ending in January), benefiting from releases that were delayed from the previous year. They also expect increased revenues from digital content and mobile devices as GameStop diversifies. For fiscal 2017, they predict revenue will increase another 1.6%.

Gross margins have always been high in this business, but Capital IQ expects them to increase even further to 30.1% in FY 2016, up from 29.7%. Earnings per share (EPS) are estimated to grow 12% to $3.90 in FY 2016 and another 15% to $4.50 in FY 2017.

Another positive is that management has stated they intend to continue a generous share buyback program. The company also pays an annual dividend of $1.44 per share for a current yield of 3%.

On July 7, GME stock broke from a multiple top followed by a breakaway gap from a bullish “V” consolidation. Very high volume and a strong MACD confirmed the breakout was genuine.

The target for the breakout is the multiyear high above $57, made in November 2013. It was at that time that it became apparent to analysts that GameStop would report almost $3 in annual earnings in January 2014, up from a loss of $2.13 in fiscal 2013. Representing just 14.6 times estimated fiscal 2016 EPS, my target of $57 appears readily attainable. This would result in gains of more than 20%.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/07/gamestop-corp-gme-stock-trade-of-the-day/.

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