Options Trade – GameStop Corp. (NYSE:GME) Calls 
Thursday, November 20, 2014

**OPTIONS TRADE: Buy the GME Jan 2015 45.000 call (GME150117C00045000) at or under $3.00, good for the day. Place a protective stop loss at $2.00 and a pre-determined sell at $4.50.

by Ian Harvey

November 20, 2014

Introduction

GameStop Corp. (NYSE: GME), a video game and gaming console retailer, is on deck to report its third-quarter results on November 20. Analysts have forecast earnings of $0.61 per share, an increase from $0.58 during the same quarter last year. The stock has underperformed the market in 2014, with shares falling 9.6% year to date which gives plenty of scope to increase after a positive report.

GameStop lost a lot of value at the start of the year, but shares have been pretty stable, and it is coming off a very nice second quarter report in August. During the company's second quarter, revenue jumped 25%, and earnings were up 134% year over year. Gains were seen in both hardware and software sales, with GameStop benefitting from high demand of Sony's (SNE) PlayStation 4, and Microsoft's (MSFT) Xbox One. The holiday season is coming up, and the company will likely mention its forecast for the holiday season during its earnings conference call, and that forecast is likely to drive the stock more than the actual Q3 results.

Technical Details

Technical indicators for GME are bullish and the stock is in a strong upwards trend. The stock has support above $42.12 and has recent resistance below $44.85.

The company has a market cap of $4.960 billion and a price-to-earnings ratio of 13.48.

Earnings

GameStop Corp. last issued its quarterly earnings data on Thursday, August 21st. The company reported $0.22 earnings per share (EPS) for the quarter, beating the consensus estimate of $0.18 by $0.04. The company had revenue of $1.73 billion for the quarter, compared to the consensus estimate of $1.64 billion.

During the same quarter in the previous year, the company posted $0.09 earnings per share. The company’s revenue for the quarter was up 25.0% on a year-over-year basis. On average, analysts expect GameStop Corp. to post $3.69 EPS for the current fiscal year and $4.38 EPS for the next fiscal year.

Positive Driving Forces for GameStop

GameStop is well poised to take advantage of the growing market of video game products and PC entertainment software. The company continues to branch out and has evolved as a mixed retailer of physical and digital gaming as well as electronics products. The company’s venture into digital, iDevice and gaming tablet businesses would be accretive to its results. In the trailing four quarters, it had outperformed the Consensus Estimate by an average of 4.6%.

Analysts Opinions

Analysts at Zacks reiterated a “neutral” rating on shares of GameStop Corp. in a research note on Monday, October 20th. They now have a $42.00 price target on the stock.

The company has also been the subject of a number of other research reports:-

• Analysts at Hilliard Lyons upgraded shares of GameStop Corp. from an “underperform” rating to a “neutral” rating in a research note on Wednesday, October 15th.

• Finally, analysts at Telsey Advisory Group reiterated a “” rating on shares of GameStop Corp. in a research note on Tuesday, September 16th. They now have a $51.00 price target on the stock..

One equities research analyst has rated the stock with a sell rating, four have given a hold rating, seven have assigned a buy rating and one has given a strong buy rating to the company. The stock currently has an average rating of “Buy” and a consensus target price of $49.54.

Conclusion

With consumer confidence at pre-recession levels, discretionary spending is likely to be good, and it is a belief that the GME's quarterly numbers will be solid, and the company will issue upbeat Q4 guidance. Should this occur, the stock is likely to break out of its sideways pattern and close out the year on a positive note, possibly climbing back to break-even or perhaps into the green for the year.

Therefore, based on the facts above the following options trade is recommended…..


**OPTIONS TRADE: Buy the GME Jan 2015 45.000 call (GME150117C00045000) at or under $3.00, good for the day. Place a protective stop loss at $2.00 and a pre-determined sell at $4.50.



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