GameStop Corp. (GME), Microsoft Corporation (MSFT), Sony Corporation (ADR) (SNE): Questioning Long-Term Sustainability

From an investment standpoint
In looking at the three companies above, it appears Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) are much better investments than GameStop. Microsoft and Sony Corporation (ADR) (NYSE:SNE) are not only bringing new consoles to market, but they also have other tailwinds.

For Microsoft, this includes the fact that CEO Steve Ballmer is set to retire within the next 12 months. A fresh face will do wonders for a company in transition. Microsoft Corporation (NASDAQ:MSFT) has already announced a restructuring and realigning of divisions, putting the company in turnaround mode. And with a pristine balance sheet, Microsoft might look to go on an acquisition spree to reinvent its business — hence the recent Nokia acquisition. And who knows, maybe Bill Gates will pull a Steve Jobs and make a comeback!

As for Sony, the company has activist support. Billionaire Dan Loeb and his Third Point hedge fund are pressing the company to spin off its entertainment arm. With the news, Sony Corporation (ADR) (NYSE:SNE) is now trading at over 35 times earnings and is up 75% year- to-date. But never fear, there could still be upside to the stock. Analysts expect EPS to grow at an annualized 55% over the next five years; quite impressive by any measure. And In his letter, Loeb outlines a price target of around $26, suggesting there’s still significant upside to the stock.

Bottom line
Basically, I am beginning to question GameStop Corp. (NYSE:GME)’s long-term sustainability. With the uncertainty surrounding its business model, I think the stock should trade at a discount to the industry, and not the premium it’s currently at. GameStop trades at 7.6 times EV/EBITDA, which is above top peer Best Buy‘s 6.4 times. Meanwhile, both Microsoft Corporation (NASDAQ:MSFT) and Sony Corporation (ADR) (NYSE:SNE) are long-term investments worth owning.

The article Is This the Next Industry to Be Disrupted? originally appeared on Fool.com and is written by Marshall Hargrave.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool owns shares of GameStop and Microsoft.

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