[[GME]] blew out earnings, yet, is trading like a shitty bitch, excuse the simile. Here’s the quote, followed by a downgrade, followed by my take.

• GME Gamestop raises Q4 EPS above consensus; reports holiday sales +35% yr/yr (55.11 )

• Co issues upside guidance for Q4 (Jan), sees EPS of $1.09-1.10 vs. $1.01 First Call consensus. “Driven by robust domestic and international sales, GameStop achieved the most successful holiday season results ever. Video game software sales grew by 45%, while the next generation installed base is now triple last year’s base and a very positive leading indicator for future sales growth.

• Increasing 4th qtr SSS from 7-9% to 15.5-16.5%. Increasing full year SSS to 23.5-24.5%.

• FY08 EPS is 1.75 vs. consensus of 1.66.

Hmm, good earnings, and the ol’ beat and raise. Ok, what’s the problem?

Apparently, some crap firm, Wedbush Morgan, comes out and proclaims GME is too expensive.

• GME Gamestop downgraded to Hold at Wedbush; tgt $57 (52.26 -2.85) -Update-
• Wedbush downgrades GME to Hold from Buy and cuts their tgt to $57 from $69, saying despite the strong sales and higher guidance, they remain increasingly concerned about valuation.

Nice call hat fuckers. Where were you three weeks ago, at a 50 PE? Since its breakout 9 months ago, GME has commanded between a 30-50 F P/E. See?

As per its old guidance (1.66), and a low multiple of 30, it should not trade lower than 50. Here we have new guidance (1.75) and a low multiple, showing $52.5 as a bottom.

The market prices shit in, and given that this is incrementally better news than the guidance GME provided in November, the price should be better than that as well. But it isn’t.

A cause for consternation. Also, all things considered and growth rates aside, 40-50x earnings for a videogame retailer is expensive.

The problem with GME is, yes it’s a superior retailer, but right now, being a “superior retailer” is an oxymoron. All retailers suck. The market may be reluctant to give this the premium it once had, which sets us up for the ugliest disaster since CFC’s Summer “Get to Know Your Inner Angelo” retreat.

That disaster is multiple contraction. Viz. up a [[DNA]] chart for the proof. It’s really a bad thing for one’s portfolio to contract.

HOWEVER, the trends of this business are intact. The videogame cycle is still going strong, and culturally, becoming more relevant.

35 year olds and women play this shit. Yes…women. That is crazy.

This year also proved that [[TGT]] and [[WMT]], despite their size, don’t offer as tangible a competitive threat as feared. I believe WMT tried to do a short-lived used game thing and canned it, due to massive suckage.

My friends think of GME as the place to go to get games, not WMT. It is entrenched––a solid moat. I don’t even know where a WMT is in relation to my house. I’ve been there twice in my life. I know where 3 GMEs are, and I’m not a gamer. Fuck WMT.

In a twisted way, a consumer slowdown could benefit GME, in that it sells used (i.e. cheaper!) games and systems. That is its highest margin segment. People, unable to go out and spend money, may just sit around and play games.

I am not selling this today, even though it looks shitty chartwise. Despite the lowest valuation in 9 months, and an RSI(2) of … 0.04, it doesn’t seem like Wall St. wants to bid this one, though I am inclined to think it bounces a little from here.

I am going to listen to the conference call later this evening, which I hope elucidates me as to the cause of the sell off. If anything new pops up, I will update this post.