Shares of GameStop (GME, $35.82, down $3.08) are trading lower higher today after reporting earnings before this morning’s opening bell.
The company said profits were $1.89 a share on revenue of $3.68 billion for the recently ended quarter. The suit-and-ties calls for $1.92 a share on sales of $3.79 billion.
This wasn’t a bad quarter given the circumstances from the weather but most games are moving to the internet and GameStop’s “growth” was from the successful launches of Microsoft’s (MSFT, $39.65, down $0.14) Xbox One and Sony’s (SNE, $18.24, up $0.19) PlayStation 4. Now that the hardware is out for the games, it will be hard to match those sales in future quarters.
Here were our thoughts in our Weekly Wrap on a possible put option trade (quotes from 3/21/14):
“GameStop (GME, $37.82, down $0.62)
April 34 puts (GME140419P00034000, $0.75, up $0.10)
Thoughts: We have always thought the company has way too many stores but their growth seemed to imply this was okay because GameStop has topped estimates for 4-straight quarters. However, beats have been by 7,6,5 and a penny, most recently, suggesting growth has slowed. The 52-week high is north of $57 and the yearly low is just above $25. We are more bearish than bullish on the stock as we feel shares have been overvalued since the move past $20 over a year ago.” (END)
The April 34 puts (GME140419P00034000, $0.75, up $0.10) closed at 65 cents yesterday and have traded up to 87 cents.
While we liked the trade, we didn’t feel comfortable adding it to our current positions as there was a chance GameStop said something good. One analysts said the conference call caused some confusion and they actually guided in-line.
We will keep GameStop on our Watch List for a future breakdown as we do see shares in the $20′s
The market has darted in-and-out of positive territory and is currently in the red as we make the turn. The blue-chips are down a 6-pack to 16,263 while the S&P 500 is lower by 4 points to 1,848. The Nasdaq is declining 20 points to 4,153 and the Russell 2000 is declining 5 points to 1,150. We would like to see these levels hold into the close and perhaps a rebound into positive territory. That would be nice.
The S&P 500 Volatility Index ($VIX, 15.33, up 0.40) has popped back above 15 and has traded up to 15.63.
We have 2 trades that will in play over the 24 hours that will determine if we make a profit or take a loss. One option trade is on a FDA ruling after today’s close on a drug stock while the other is a bullish option earnings play for Friday morning. We have updated our current thoughts for both along with the rest of our current trades so let’s go see where things are at.
Subscribers, check the Members Area for the updates. Note: We could have a New Trade before the closing bell so stay locked-and-loaded.