Following news of yesterday's record third quarter, analysts from Wedbush Morgan, Stern Agee, and Janco have said the fall of GameStop stock is overplayed and have unanimously said the retailer should easily outperform its more conservative Q4 outlook.
Janco's Mike Hickey noted that "Despite massive upside performance for the period, the market puked [GameStop's] shares yesterday after receiving their fiscal Q407 guidance, sending shares down $5.38 or 10% from the prior day’s close in early morning trading."
However, he said, "We do not see any indications from Management or the retail channel which would suggest video game weakness over the holiday, and expect their guidance will prove to be very achievable [and] consider fiscal Q407 upside very achievable, with upside likely."
Wedbush's Michael Pachter's agreed, saying "We are somewhat baffled by the market reaction to GameStop’s earnings report... We thought that the company’s results were outstanding, with same store sales of 46.3% and overall sales growth of 59.3%, meaning that GameStop gained market share during the quarter."
"While some investors are apparently dissatisfied that company guidance is below street expectations for Q4... We believe that management is prudently offering guidance that it is confident it can achieve, so we are not taken aback by today’s Q4 comp guidance of 7 – 9%," he continued.
Finally, Stern Agee's Arvind Bhatia advised that "the 'street' seems to be ignoring the fact that the company beat Q3 consensus by $0.10. In the end, the company has raised annual guidance by $0.15 and that is what should matter."
"Given history of beating guidance, we believe the company is being conservative," he concluded. "GME remains one of the best ways to play the rapidly growing video game space and one of a select few retailers showing strong comps and earnings growth in the current economic environment. We remain bullish on the story."
GameStop saw third quarter sales up 59.3 percent to a $1.6 billion and profits up 283 percent to $52 million, thanks to the performance of Halo, Madden, Bioshock, Wii Play and Guitar Hero.