The video game industry, of which GameStop Corp. (GME) is a part, had surged ahead for a number of years, but is now grappling with the recession. Heavy job losses and reduced access to credit markets have led to lower discretionary spending. This has resulted in lower demand for video game consoles and new software.

Moreover, the cut-throat competition from big-box companies is also weighing upon GameStop’s results. These unfavorable backdrops were evident from the company’s sluggish holiday sales season, which prompted management to lower its comparable-store sales and earnings guidance.

Thus, we maintain an Underperform rating on the stock until we see an upturn in the company’s growth trajectory.

Zacks Investment Research

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