Gamestop’s closest U.S. comparable is Best Buy (BBY). Analysts
for Best Buy Inc. are predicting an 8% year over year EPS growth
rate. Based on current trading prices, BBY trades at a P/E
ratio of around 13.
Meanwhile, analysts project a 14% year over year EPS increase at
Gamestop Inc (NYSE:GME).
With higher analyst growth expectations, one would expect GME to
have a higher P/E ratio than BBY, right? Wrong.
Gamestop, with also less debt relative to its market cap than Best
Buy, trades at a P/E of less than 10, reflecting a belief from
analysts (and even some industry executives) that Gamestop growth
is doomed.
There are two main reasons for this belief – but they are
not actually reasons, they are theories. Theory #1 is that
competitors will start biting into GME’s used game
business. Theory #2 is the more popular idea, that digital
distribution will start cutting significantly into the retail
business. None of this has actually happened. They are
theories. Yet, Gamestop trades as if they are facts.
The used game competition theory has already proven to be
questionable with retailers like Best Buy and Wal-Mart (WMT) making passive
deals with third parties to make room for used game trade machines
that are supposed to market themselves to game traders.
Amazon and others have jumped in with me-too concepts and Gamestop
has seen little impact, because Gamestop’s approach to used
games is in no way passive. The fact of the matter is no
other retailer besides Blockbuster is really equipped to compete in
a meaningful way due to store size, and meanwhile Blockbuster is
closing down stores.
But Gamestop is the next Blockbuster,…
