Many analysts are carefully watching GameStop Inc’s (NYSE:GME) closest overseas equivalent, Game Group PLC (LON:GMG), in order to form an opinion on the future of GameStop.  Game Group’s management has never been known to keep up with GameStop’s management success, as Game Group has failed to corner the British market on small boutique new and used game sellers in the way that GameStop has been able to monopolize the U.S. market.   Game Group faces stiff competition from several small rivals and also faces a very unique competitive environment where conveniently located grocery stores have increasingly added to competition.  Game Group's results in the recent year have been disappointing.

Since Game Group’s available numbers are limited to the first half of 2009, let’s compare those with GameStop.  Game Group reported earnings of 2.23 pence for the first half of 2009, down 64% from the previous first half where it made 6.63 pence.

GameStop, meanwhile earned .66, down only 10% from .73 the previous year.  If that difference doesn’t jump out at you, consider this: based only on earnings from the first half of 2009, Game Group’s price-over-earnings (P/E) ratio is around 65% higher than GameStop Inc. based on current stock prices, and that’s after Game Group stock dropped 18% this week.  Both companies have strong balance sheets.

The main difference between the companies aside from the valuation variance is that Game Group offers a dividend to shareholders, resulting in a 3% yield.  It is in this author’s opinion that GameStop should and will begin distributing dividends after this holiday in 2010, providing a new and long term incentive to hold shares.

Based on current analyst estimates (which are largely based on company guidance given recently in mid November), analysts expect full year earnings of $2.55 for GameStop and 15% growth in 2010, with price targets averaging to around $32.  Those earnings would represent a low current P/E of 8 and future P/E of 7.

GameStop trades at a discount to Game Group in London despite the fact that GameStop controls the U.S. market when it comes to conveniently located video game destinations.  The GameStop brand name is also more valuable than the unimaginatively named “Game” stores in Britain.

Last week, investors were frightened away from GameStop shares yet again by a Wal-Mart press release that said it was discounting “25 Top Games” (as opposed to saying "Top 25 Games").  The clever press release did not mention that the 3 top selling titles this holiday, which likely represent around a third of all software sales, were not being discounted at all.  You see, Wal-Mart likes to play games too.