GameStop is not a compelling buy at these levels

Shares of the gaming retailer are up more than 130% this year.

By Stock Traders Daily Nov 15, 2013 2:35PM

File photo of the GameStop store in New York on April 28, 2008 just before 'Grand Theft Auto IV' was released (© Ramin Talaie/Bloomberg via Getty Images)By Neal Rau  

 

Shares of GameStop (GME) have soared this year and made investors very happy, as the stock is up 134% so far. 


The video game retailer is hiring as it prepares for the upcoming PlayStation 4 and Xbox One console launches and the busy holiday shopping season. Consumer interest in the new video gaming cycle continues to accelerate and seems to be topping even the most optimistic forecasts. 


After a 21% run in the last three months, do shares still have upside?

 

GameStop expects to see a surge in sales from the highly anticipated launch of the PlayStation 4 and the Xbox One consoles, which are set for Nov. 15 and Nov. 22, respectively. In addition, the growing demand for the company’s products will likely continue through the holidays. 


GameStop is scheduled to report earnings on Nov. 21, before the market opens, adding to catalysts in the near term. Based on the Stock Traders Daily GME real-time trading report, GME recently bounced off near-term support after a 5% pullback at the start of November. 

 

The company is looking to hire 17,000 employees nationwide. The positions GameStop is currently recruiting for include in-store Game Advisors, consumer electronic technicians within its refurbishment operation center and warehouse personnel within the company's two distribution centers. 

 

Amazon.com (AMZN) will of course be competing with GameStop, and recently the online giant announced it sold out of both the Microsoft (MSFT) Xbox One and the Sony (SNE) PlayStation 4. (Microsoft owns and publishes Top Stocks, an MSN Money site.)


It might actually be good news for GameStop, as some stores still have inventory, which will bring more customers into the stores. Gamestop also offers used games and consoles that consumers could be looking to replace. During the launch period, the company is offering Xbox 360 and PlayStation 3 deals to try to increase the user base for used games.


Many analysts believe that the PS4 launch will be significantly larger than the last cycle.  Estimates suggest the PS4 selling 3.1 million units, or 85% more globally during the December quarter than the PS3’s launch in the December 2006 quarter. As for the Xbox One, they expect it to sell 3 million units, or 100% more units globally this quarter versus the Xbox 360’s launch in the December 2005 quarter.

 

Shares are up almost 50% over the past six months, and smart money will be watching the price. The stock is trading near the 52-week highs after bouncing off near-term support recently.  Currently the stock is sitting in the middle of a channel according to our real time trading report for GME, so it does not look attractive as a buy right here.


By definition we prefer to buy near support levels when they are tested because that allows us to maximize our return, our target is resistance and we want to get the complete oscillation from support to resistance, but it also helps us control risk, and that is the most important part. With so much news already out, and high anticipation with the new hardware launches, a "sell the news" pullback might offer an opportunity to buy near support, as shown in our GME real-time trading report.

 

Stock Traders Daily has been providing comprehensive market analysis, and correlated trading strategies since January 2000, which was the virtual peak of the Internet Bubble.  Our objective is to provide strategies capable of making money in any market environment, and we have been doing that since inception.


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