When it comes to making money on Wall Street, there are plenty of opportunities with contrarian plays. But it can be tough to gin up the courage to make a purchase. This certainly appears to be the case with GameStop Corp. (NYSE:GME), as investors have certainly been pounding the shares. Since late 2015, GME stock has gone from $47 to $24.50.
![GameStop Corp. (GME) Stock Is Dying, But It Still Has Something to Offer](https://investorplace.com/wp-content/plugins/lazy-load/images/1x1.trans.gif)
But perhaps there is an opportunity here? Could GameStop stock really be a good contrarian play? Well, I think so.
Although, the company certainly has legitimate issues. Perhaps the most important is the rapid changes in technology. Let’s face it, many brick-and-mortar operators, like Macy’s Inc (NYSE:M) and Target Corporation (NYSE:TGT), are feeling the pressure from the shift to e-commerce. There have also been a variety of notable bankruptcies in the sector, such as with HHGregg, Inc. (OTCMKTS:HGGGQ) and Radio Shack.
Of course, in the case of GME stock, there is the issue of dealing with the trend towards digital downloads. After all, what’s the point of going to a store and buying some disks?
Well, as seen with the latest reports from GameStop, it appears that more consumers are not showing up. During the holiday season, new hardware sales plunged by a grueling 30.3% and video game software sales were down by 22.8%. Granted, part of this was due to a lackluster slate of new titles. But it does seem like a good bet that GME stock also felt the impact of the secular changes in consumer behavior.
According to InvestorPlace contributor Laura Hoy: “GameStop is likely to find it very difficult to cope with a shift to the cloud, as the company’s online presence is relatively small. Console makers like Microsoft will be happy to cut out the middleman and sell their games direct to customers via the cloud, leaving GameStop with very few options to evolve alongside the industry.”
Rethinking GameStop
One silver lining with GameStop stock is that management has been working hard to transform the company. For example, there have been strong moves to cut costs and bring much more discipline to the organization.
What’s more, management has made a big move to diversify the business, such with acquiring 1,400 mobile phone stores, which focus primarily on AT&T Inc. (NYSE:T) offerings. There are also 72 Simply Mac stores that target smaller markets that Apple Inc. (NASDAQ:AAPL) is not interested in.
But even in the core GME stores, there is a thriving business in collectibles. These include themed products for characters like Batman and Superman.
Another key asset is the PowerUp Rewards program, which has over 51 million members across the globe. This is not only a great way to help with the brick-and-mortar operations, but also with the digital segment.
Catalysts for GameStop Stock?
Investors in GME stock should not count out the traditional gaming business, though. According to Mizuho analyst San Phan, the shift towards digital downloads could be decelerating. Simply put, many gamers still do not have fast-enough broadband access. As a result, Phan has a price target of $35 on GameStop stock.
But there are some other catalysts to consider. For example, the new Nintendo Co., Ltd (ADR) (OTCMKTS:NTDOY) Switch system may provide a nice revenue boost. Already, it looks like the platform is a hot seller.
And yes, this year there will be the launch of new console from Microsoft Corporation (NASDAQ:MSFT), which should help drive more traffic at GME stores.
Bottom Line on GME Stock
GameStop stock is certainly trading at a dirt-cheap valuation. Keep in mind that the forward price-to-earnings ratio is at only 6.6. Furthermore, GME continues to pump out substantial amounts of cash flows, which are expected exceed $400 million this year. With this, the company should be able to meet its dividend obligations — the yield is at a juicy 6% — and to buy buyback GME stock.
But again, it’s true that the company continues to face lots of challenges. However, at least for the near-term, it looks like the selling of GameStop stock has been excessive. In other words, the shares do look like an interesting contrarian play right now, especially if there are nice surprises with the new console launches from Nintendo and MSFT.
Tom Taulli runs the InvestorPlace blog IPO Playbook and is the author of various books, including Taxes 2017: Saving A Bundle. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.