GameStop Corp. (NYSE:GME), the video game and consumer electronics retailer, saw its stock surge on Friday after first-quarter 2015 earnings showed Wall Street the company isn’t playing around. GME stock was up nearly 7% in early trading.
That 7% essentially matched GME stock’s performance for the past 52 weeks — a showing that paled in comparison to fellow electronics retailer Best Buy Co Inc (NYSE:BBY), whose stock soared 26% during the same period. Heck, GameStop stock couldn’t even match the returns of the benchmark S&P 500 index, which boasted a one-year return of just more than 10%.
But after yesterday’s impressive GME earnings report, I wouldn’t be shocked to see shares make up for lost ground. Call me crazy, but with an attractive valuation and a hefty dividend to boot, GME stock is actually looking like a buy.
Not convinced? Let’s take a look at last quarter’s numbers and a few of the catalysts for GME stock down the road:
You Can’t Stop GameStop
On the face of it, revenue growth wasn’t anything to write home about, clocking in at 3.2% year-over-year. But the $2.06 billion top line still exceeded the $2.01 billion analysts expected.
GameStop earnings also breezed by Wall Street expectations, clocking in at 68 cents in the quarter, which was enough to beat the consensus by 10 cents. That EPS figure represented 15% year-over-year growth; meanwhile, analysts expected the gaming retailer to earn a penny per share less than it did last year.
Oh, ye of little faith!
GameStop has garnered plenty of skeptics in recent years, as Microsoft Corporation (NASDAQ:MSFT) chose to start selling digital games directly through its immensely popular Xbox platform. Why go to your local GameStop when you can just sit on your couch and buy the game there?
The Xbox store doesn’t sell used digital games — that’s why.
Since we now see that neither of these threats seemed to really ding GameStop’s business, those concerns are largely diminished.
With two blockbuster sports game releases on tap for this summer (FIFA Soccer and Madden 2016), GME should continue to get some nice foot traffic in its stores.
GME also raised guidance for the second quarter and full year; it now expects same-store sales to grow by 3% in the second quarter where they were previously projected to be flat. Same-store sales are expected to rise between 1% and 6% for the year as well.
Moreover, GME trades at a forward price-to-earnings ratio of just 10 — an even more compelling valuation when you consider that earnings are expected to rise 14% next year.
GameStop shells out a 3.3% dividend, too — a dividend it instituted just a few years ago (in 2012) and has already doubled in the time since. Not only that, but the GME dividend has plenty of room to grow, as the annual payout represents just 33% of next year’s earnings.
With those compelling metrics in mind, now wouldn’t be the worst time to make a play on GameStop.
As of this writing, John Divine did not hold a position in any of the aforementioned securities. You can follow him on Twitter at @divinebizkid or email him at firstname.lastname@example.org.
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