GameStop Corp's (NYSE:GME) management is making every effort to recoup investor trust after earnings missses earlier in the year. Now, there is not one but two clear signals of management communicating confidence in their business. They are practically yelling . . .
"Trust us, GameStop is well positioned, we are gaining share. We will come through with record earnings. The drivers for our business are solid, don't lump us with the overall industry."
Are investors listening?
Let's take a look at recent events . . .
- On Friday, GameStop management broke their silence, and commented outside their normal window, that GameStop's new video games sales for the all important November period were up a stunning 15%, this in light of a 3% decline in industry comps in the same period according to NPD released on the previous day.
- Just three short weeks ago, after reporting earnings on the top end of guidance for the 3rd quarter, management raised the bottom of estimates from $2.40 to $2.45 while keeping the top end at $2.64 (representing EPS growth between 2% and 10%).
What does this mean to investors?
Managements announcements, first raising the floor on earnings and then Friday's announcements must be contrasted with their earnings misses in both Q2 and Q3 of this year. These misses coupled with fears from digital distribution and increased competition have clearly hurt GameStop's share price, taking it to a near record low valuation. Given the credibility loss management has suffered, it is a powerful statement to give not one but two bullish signals to the market in a three week period.
"Trust us, GameStop is well positioned, we are gaining share. We will come through with record earnings. The drivers for our business are solid, don't lump us with the overall industry."
Are investors trusting them this time around, or just waiting to see the actual results?
At 7-8x forward earnings estimates, along with these recent shareholder communications, I am giving them the benefit of the doubt.
Disclosure: author is long Gamestop Corp.
