GameStop reported share price has taken a huge dive recently. Why? A lot of analysts believe that the video game store is going through a serious death spiral right now. The market is shrinking due to the Xbox and Nintendo switch – the Wii and PlayStation are not as popular as they once were. In fact, analysts say that Nintendo Wii sales are actually dropping, even though Nintendo’s other games like Wii sports and Guitar Hero are still doing quite well.
GameStop Saga
If you have been watching the financial news, you know that the recession is hitting every sector of the economy, including the video game industry. If you are a gamer, you know that video game prices are shooting up while game supply stays the same or gets lower. In this case, the video game store is suffering a double Whammy.
How does a company like GameStop (or any other electronics retailer for that matter) manage to ride out a stock price that goes down? The answer is simple: stock price is a very fickle thing. A company can increase its share price and actually see its profits rise if the company’s business model works. However, many companies go “out of business” and the stock price plummets because no one wants to buy their shares. The savvy investor can ride this out and still make money!
Boy oh Boy
Let’s look at an example to illustrate this point. A couple of years ago GameStop stock prices would have been flat to negative, meaning that investors would have bought more shares. Now, however, GameStop is laying off a large portion of its employees, which means that the company is closing down one of its most lucrative departments. Investors in GameStop stock should realize that the negative share price will reflect in the earnings that are released from that department. Therefore, they may decide to hold on to their GameStop shares even though the outlook for the business is bleak.
