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Hi Itconsultant,

I think their could be plenty of growth left in them. If the economy bounces back, or if a new slate of must have games come on the market, Gamestop could generate some big numbers. They are down mostly now on lower sales caused by a crashing economy. Industry sales are way down. They are just down with them. They are still gaining market share on competitors.

I don't think Wal-mart and Best Buys are hurting them nearly as much as the economy is hurting them. So those things can change.

Their used game business offers good growth potential. It is still growing well, so I believe it is a value play, opposed to value trap, with growth elements. The growth coming from their used game business which is still growing strong and represents their most profitable business. The other potential for growth comes from a reversing economy. As the industry reports more new consoles sold or more software sold, Gamestop should get their usual boost from that. And they are still increasing the number of stores, but for now that may be offset by declining same stores sales. Again that should reverse itself if the industry as a whole was reporting higher sales as they have in years pass, instead of record declines.

But then we also have to consider the BIG FEAR. AT some point will downloads make their business obsolete? Many, including Morningstar all but say their doomed, actually I think they said they were doomed. I think the fear is overblown at least for now. And there is at least hope that GameStop may do as Netflix did and make deals with publishers to stream their games. I remember when people argued that due to streaming content Netflix was doomed. That turned out to be very wrong. Their streaming content is doing well but it also made their hybrid business extra strong.

Gamestop is developing their dowload business too. And not every one is going to download games. And publishers don't like the idea that those downloading want the games at a fraction of the cost. Morningstar said publishers were tired of working through the third parter retailers. But I must counter that if publishers had to allow $5.00 downloads, they may dream of the day of third party retailers were doing all the selling. That part of the future is still very much in the air in my opinion. I certainly think they are a value play, but that they also have nice growth elements.

tom e

thomas engle
TMF Coverage Fool
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