Is GameStop Corp. (GME) Stock Anything More Than a 6% Yield?

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Does GameStop Corp. (NYSE:GME) still have a working business model? That’s the most-pressing question on the minds of GME stock holders and pundits alike.

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The largest dedicated retailer of video games and gaming consoles has seen its share price punished some 20% over the past year. That trails not only the 16% rise in the S&P 500 index, but also the 7.7% decline in the SPDR S&P Retail ETF (NYSEARCA:XRT) during that span.

With earnings on tap for Thursday night, GME stock investors need to think long and hard about what they’re holding.

Not Playing the Waiting Game

GameStop’s woes have been mild this year, with shares off 2.5% for the year-to-date. But its woes over the longer-term have driven the yield on GME stock to 6.2% — about three times what the average S&P 500 stock yields.

Still, investors must reconcile whether the dividend, despite its robust status, can offset the declines GME stock may suffer in the quarters ahead.

The company’s business has taken a massive hit as video game console content from the likes of Microsoft Corporation’s (NASDAQ:MSFT) Xbox and the PlayStation from Sony Corp (ADR) (NYSE:SNE) shift to direct digital.

Meanwhile, when GameStop is not being hurt from online content, it still has to face the rapid rise in mobile games. This combination has caused GME revenue to decline in three straight quarters.

In other words, GameStop, which has seen fewer customers enter its stores, is heavy reliant upon the hardcore gamer — those who prefer traditional discs as opposed direct media. How bad is the trend?

Investors will find out Thursday when the company reports fourth-quarter earnings.

While GME stock might look depressed, there is no sign that a turnaround is imminent. And investors largely have shown they’re not willing to wait for the company to turn things around.

Bottom Line on GME Stock

GameStop has already suffered a more-than 16% decline in total revenue in the first two months of the quarter, driven by an almost 19% plunge in same-store sales. Notably, the first two months of the quarter included the all-important holiday shopping season and the launch of Call of Duty: Infinite Warfare.

For the quarter that ended January, Wall Street expects EPS of $2.29, down from $2.40 a year ago on revenue of $3.1 billion, down 12% year-over-year.

Do those numbers justify the rent GameStop pays to strip mall owners?

To say it more directly, at what point will the company embrace the online shift and monetize the trend that Netflix, Inc. (NASDAQ:NFLX), not BlockBuster, saw a decade ago?

Income-hungry investors who are willing to wait 12 to 18 months can own GME stock and collect a solid dividend in the process. But the strength of the dividend yield is also a byproduct of the punishment the stock has suffered over the past year.

And with consensus price target calling for $26, or just 5.5% return from current levels, there’s not enough value in GameStop stock to suggest it is worth playing for a recovery.

As of this writing, Richard Saintvilus did not hold a position in any of the aforementioned securities.


Article printed from InvestorPlace Media, https://investorplace.com/2017/03/gamestop-corp-gme-stock-anything-more-than-a-6-yield/.

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