Microsoft Corporation (MSFT): Is It Time to Sell Those GameStop Corp. (GME) Shares?

Nintendo

With stock prices on a steady decline since 2009, it’s hard to get excited about Nintendo. On the other hand, since the Wii U will be on equal graphics footing with the new PlayStation 4 and the new Xbox, it’s conceivable that gamers will migrate in that direction if they can’t play used games on the other new consoles. A migration like that could do amazing things for Nintendo, but I’m not sure Nintendo is ready for it. They don’t have the same contracts with third party content developers that Sony and Microsoft Corporation (NASDAQ:MSFT) do. The number of games out for the Wii U is still fairly small, which isn’t unusual in a console’s first year, but if you look at the games currently available for the Wii U, there aren’t a lot of blockbuster titles on that list. There hasn’t really been a big breakout game for the Wii U yet. Nintendo needs a Wii U game that players are clamoring for, but as yet, it hasn’t appeared. Despite a market cap of $14.12 billion, the price earnings ratio of 56.45 makes me nervous that they’re really overvalued. Nintendo is the only console manufacturer that is solely in the game market, and that makes me worry about their ability to move in new directions and grab gamers away from Sony and Microsoft Corporation (NASDAQ:MSFT).

GameStop

With a market cap of just $3.1 billion, and a price earnings ratio that, like Sony’s, isn’t being listed, GameStop Corp. (NYSE:GME) is the small player in this console drama, and the one that’s most likely to be crushed. GameStop’s business model is heavily based on the used game market and it very much looks like that market is going to disappear. Couple that with the fact that GameStop’s stock chart for the last five years looks a lot like a roller coaster, if you’re holding GameStop Corp. (NYSE:GME), now might be a good time to start watching it closely to best gauge what you want to do and when you want to do it.

Conclusion

The console war is just heating up, but no matter how the war goes, it doesn’t look like the used game market is going to be around for long. Sure, the prospect of losing the used game option might make some gamers hold on to their legacy consoles longer, but inevitably, people want the new systems and the new games. Television, movies and books have all paved the way for digital downloads, and the gradual disappearance of the used market. These new consoles are just one more step down that inevitable path.

The article Is It Time to Sell Those GameStop Shares? originally appeared on Fool.com and is written by Marie Flanigan.

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