Investopedia: Balancing Skepticism And Opportunity On GameStop

I have not been shy about my lack of faith in the durability of GameStop's (NYSE:GME) business model. That said, one of the worst mistakes any investor can make is to just past judgment on a company, assume you will always be right and never re-examine the story or your own assumptions. When I look at GameStop, I still see a lot of problems, but I also see how the stock may well be something of a value today.

Rehashing the Old
My original (mostly negative) thesis on GameStop ran something like this. Used game sales are a major component (more than 40%) of gross profit and the ongoing expansion of digital distribution by Electronic Arts (Nasdaq:EA), Activision Blizzard (Nasdaq:ATVI) and Take Two (Nasdaq:TTWO) should shrink that pipeline. Moreover, it wouldn't shock me to see a company like Best Buy (NYSE:BBY) at least entertain the idea of competing in that space, in an attempt to drive store traffic.


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Investopedia: Take-Two Still Offering Twists And Turns

Volatility can be both boon and bane to investors. Traders certainly love it, and savvy value investors learn to appreciate it for the discounts it can create. On the other hand, volatility based on inconstant underlying financial performance makes valuation more difficult and does no favors to the mental health of those who would prefer to be long-term shareholders.

For better or worse, Take-Two Interactive (Nasdaq:TTWO) continues to be a volatile company. While the company has certainly made progress towards more consistent financial performance, progress towards a goal is not the same as achieving that goal. Take-Two may still offer investors the potential for above-average capital gains, but prospective buyers have to ask themselves if they can handle the uncertainty that will go with the possible profits.

A Sweet and Sour End to the Fiscal Year
Take-Two recently decided to change its fiscal year, and the March quarter now represents the end of the company's fiscal year. For the quarter, Take-Two announced that revenue fell 22% to $182 million. Though that certainly does not sound all that impressive, that $182 million is considerably more than analysts expected, as the averaged estimate called for $148 million and the high-end estimate was $170 million. Sales were not driven by any major releases; rather, the company's revenue came from its catalog. To that end, this is an encouraging sign - if the legacy business can produce better revenue, that's a big step towards a more consistent financial performance. (For more, see Power Up Your Portfolio With Video Game Stocks.)

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4 Companies That Should Have Sold Out

Mergers and buyouts are part and parcel of the investing experience. While a buyout bid can give a nice return to a short-term investor, longer-term investors often fret that a bid may entice management to sell a company for less than its true long-term value. What is also true, though, is that sometimes managers are unreasonably and unproductively stubborn - refusing to hand over the reins (and their large executive salaries) and allow shareholders to book a profit or own shares in a larger enterprise. (For related reading, take a look at Mergers: The Sign Of Economic Recovery?)

With news swirling around 3Par's (NYSE:PAR) willingness to sell to either Dell (Nasdaq:DELL) or Hewlett-Packard (NYSE:HPQ), there is the sharp contrast of Genzyme's (Nasdaq:GENZ) resistance to a bid from Sanofi-aventis. Let us take a look at examples where shareholders really would have been better-served if their managers had signed on the dotted line and taken the deal. (Find out how you can cash in, read Trade Takeover Stocks With Merger Arbitrage.)

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