"Industry growth remains on a path toward deceleration from its current peak," predicted Higginbotham, downgrading the stock of game retailer GameStop to a sell rating. GameStop stock has become popular because it's a way for investors to bet on the industry while not having to predict whether any one publisher or game will meet with success. But using his prediction for a future industry downturn, Higginbotham maintained a $50 price target for the shares, which are currently hovering around the $55 mark.
Although acknowledging that soon-to-release blockbusters like GTA IV and Wii Fit are likely to sell very well, Higginbotham pointed out his belief that "the remainder of the year lacks any big releases, and comparisons get tougher throughout the year as we lap titles such as Halo 3 and Guitar Hero 3."
This goes against popular opinion, which sees the industry as continuing to outperform itself just as it did last March, and in the face of an economic downturn. Said analyst Arvind Bhatia of Sterne Agee: "It increasingly appears the current video-game cycle could be longer and stronger than the most recent one."
But Higginbotham believes that his current valuation of GameStop stock already takes some level of growth into account. Even if the industry and GameStop hold their ground for 2008, Higginbotham believes they could still be in for a drop: "Even in this strong upside case, 2009 growth will still decelerate."
