Why GameStop Stock Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of GameStop needed a reboot today, falling as much as 11% after a weaker-than-expected outlook in its third-quarter earnings report.

So what: This was actually an excellent quarter for the video game retailer as same-store sales jumped a whopping 20.5% and its EPS of $0.58 beat its guidance and analyst estimates of $0.57. Sales increased 18% to $2.11 billion, also topping the experts' view of $1.98 billion. Still, in the all-important fourth quarter, GameStop's projections came up short. The market has been bullish on the stock as new consoles from Sony and Microsoft are set to hit stores for the holidays, but the company's Q4 EPS forecast of $1.97-$2.14 was short of the analyst consensus of $2.15.

Now what: GameStop shares had more than doubled this year before today's report so the stock's drop needs to be viewed in that context. The popularity of new games such as Grand Theft Auto V helped lift the stock this year as have the high expectations for the PlayStation4 and Xbox One. Considering GameStop's P/E of about 15 based on its full-year EPS projections, those expectations now seem fully priced in. Still, better-than-expected sales of the new consoles could lift the stock again over the holiday season.

Looking for the GameStop of 2014?
The market stormed out to huge gains across 2013, leaving investors on the sidelines burned. However, opportunistic investors can still find huge winners. The Motley Fool's chief investment officer has just hand-picked one such opportunity in our new report: "The Motley Fool's Top Stock for 2014." To find out which stock it is and read our in-depth report, simply click here. It's free!

The article Why GameStop Stock Dropped originally appeared on Fool.com.

Fool contributor Jeremy Bowman has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.