GameStop Corporation (GME), the video game and entertainment software retailer, recently announced a new share or debt repurchase program, overriding the previous program of $300.0 million.
The newly announced program, which does not have any explicit confines of termination, authorizes the company to procure up to $500.0 million shares or debt over the next 18 months through open market or private transactions.
The gaming giant had about $138.4 million left at its disposal under its $300.0 million share repurchase program, authorized in September 2010.
Even though the newly announced program reflects the sound financial position of the company and its aim to enhance shareholders’ return, the current gaming environment makes the investor’s jittery about the upcoming prospects of the game retailers.
The recent technological advancements has made the gaming industry highly aggressive as the buyers now have multiple options to obtain video game accessories and softwares for gaming systems and computers.
However, at this stage, the consumers can only avail a limited number of PC entertainment software and older generation video games from the Internet. But, if the consumers’ accessibility increases, they may no longer prefer to buy PC entertainment software and video games through the company’s retail stores.
GameStop, which faces stiff competition from Amazon.com Inc. (AMZN), is well positioned to benefit from the gaming products and PC amusement software market. The company follows a strategy of store extensions in productive regions and offers the largest collection of games.
Moreover, GameStop holds a significant position in the used gaming products market. The company provides a greater selection of used video game products for both current and previous generation platforms. Besides, the market for these products has been resilient to the recent economic downturn.
The company intends to generate ample cash flow from operations in the coming years, to support opening of new stores, upgrading the existing ones, renovations, buyout plans as well as share repurchase program.
After a broad evaluation, we prefer to maintain a long-term ‘Neutral’ recommendation on the stock. GameStop also holds a Zacks #3 Rank, which translates into a short-term ‘Hold’ rating.
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