GameStop: Buy or Value Trap

Over the Weekend, Barron's had a featured article about GameStop GME, the video game retailer.  GameStop (which I personally owned a few years ago), has been on a steep decline since 2008.  From a relative and fundamental standpoint the stock looks cheap.  It has do debt, generates cash, has a P/E below 6, and pays out a 3.6% dividend yield.  Sounds great, so what's the catch?

In our view the catch is that the stock does not have a catalyst to drive it higher.  To us this what some people call a "classic value trap".  All of the numbers look great but the company has no driver to push the price higher.  People are buying games online and/or are going to other retailers who have stepped up this game in this budding industry.

As the Barron's article points out the only hope or catalyst to drive the stock higher is a potential buyout which we see currently going on at Best Buy BBY.  However as we all know hope should never be an investment strategy.

	Recent	12-Mo	2012E		Market	Div
Company/Ticker	Price	Chg	EPS	P/E	Val (bil)	Yld
Best Buy /BBY	$19.19	-20.3%	$3.76	5.1	$6.8	3.5%
GameStop/GME	16.83	-18.1	3.15	5.3	2.2	3.6
E=Estimate.				Source: Thomson Reuters