According to Joel Greenblatt's "Magic Formula," GameStop is a great buy -- high return on capital and a cheap stock at 5 times cash flow. But as Fool analyst Austin Smith notes, there are downsides to this company. GameStop has seen an 11% drop in revenue for the most recent quarter and is operating in a deteriorating environment. Retail video-game sales were down by 20% in July, and comapnies in this niche are relying on dated devices to keep them afloat in dying market. The new Wii U is the next game device on the horizon, but it's replacing a unti that's a distant fourth in popularity behind Nintendo's DS, the Sony PlayStation, and the XBox. So for GameStop, the game might be over. See more in the following video.
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The article Is It Game Over for GameStop? originally appeared on Fool.com.
Andrew Tonner and Austin Smith have no positions in the stocks mentioned above. The Motley Fool owns shares of GameStop and Microsoft, is short Sony, and has options on Sony. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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