• GameStop Corporation (GME) traded 12% lower on Friday morning, after posting earnings that beat Wall Street expectations, as its guidance fell below.
  • Our view is that GME has more time to decline, as its current cycle will continue until January.

The company reported earnings per share of $0.67 and total revenue of $2.08 billion, compared to analyst estimates of $0.57 and $2.03 billion. However, management’s guidance for the coming year’s earnings came to $2.55-2.75, which is well below the average analyst estimate of $3.04.

While this guidance may be disappointing, explained CEO Shane Kim, “We understand we need to adapt our business model and find additional ways to leverage our customer relationships and competitive advantages.”

While we see GME as a classic value trap with a PE ratio of only 4, our own view is rooted in the stock’s market cycles. After a quick pop early in this cycle, GME has been in the declining phase of this cycle which still has several weeks remaining. Our near term target is $12 by January.

For more from Slim, or to learn about cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel.