The video game industry, of which GameStop Corp. (GME) is a part, 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 cutthroat competition from big-box retailers is also weighing upon the company’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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