The bullish sentiment in GameStop (NYSE: GME) did not last long. In after-market trading on Mar. 28 when the company reported fourth-quarter earnings, the stock rose, only to fall the next day. GameStop appears to be a value trap.
GameStop earned $2.02 a share on an impressive 14.8% Y/Y growth in revenue of $3.5 billion. Both EPS and revenue beat consensus. Still, bearishness is so high that the stock is unlikely to shake off the short-selling. At a short float of 35%, bears bet that the sub four-times P/E will not attract value investors to buy the stock.
In the last quarter, the company benefited from Nintendo (OTC: NTDOY) Switch sales. Yet worries persist. The company guided revenue lower and EPS dropping by as much of 10%, the latter of which should be benefiting from a lower tax rate. Analysts also forecast earnings of $3.32 a share but GameStop is forecasting $3.00 - $3.35 a share. On its conference call, management highlighted innovation from new consoles like the Switch, PS4 Pro, and Xbox One X for driving hardware sales.
Some specific game titles gave the quarter a lift. Star Wars Battlefront II was its second-best seller in Q4. So with the lack of Switch and hot titles for the rest of the year, GameStop will have a problem with meeting its own revenue forecast.
