Tuesday, Credit Suisse downgraded GameStop Corp. (GME) shares to Neutral from Outperform and lowered its price target to $25 from $28.
Analyst Balter downgraded the stock, as despite what seems to be an exceedingly exciting valuation and improving product line up, he worry that he has been and would continue to be in a value trap, where even better results do not expand the multiple.
Despite cheap relative valuation, the analyst believes a number of factors may keep GME's multiple from expanding, including if he sees continued aggressive pricing from Wal-Mart, Amazon and others, weakness in the catalogue business/casual gamers buying less games as they find entertainment alternatives, margin pressure from competitors or due to weak industry trends, signs that digital downloading is gaining more traction, and GME aggressive expansion plans.
The analyst believes the stock is already embedding a lot of bad news and limiting the downside is valuation, cash flow support and recent signs that management will support the stock through share buybacks, expectations that appear much lower now, easier comparisons against double digit industry declines last year, and a handful of highly anticipated titles slated for release.
The analyst said that signs of stabilizing margins and how the company can grow margins again are key, as well as signs of improving secular trends particularly outside just the core gamer and handful of AAA titles each year.
Currently, GME is down $1.01 or 5.13% and trading at $18.68.
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