GameStop shares tumble after 1Q results

"Beyond Wii Fit in May, we see no major blockbuster releases such that new software growth will decelerate through the end of the year," wrote Goldman Sachs analyst Robert Higginbotham in a note to investors. Wii Fit, which went on sale this week, is Nintendo Co.'s exercise game.

GameStop got a boost with Take-Two Interactive Software Inc.'s "Grand Theft Auto IV," crime franchise which sold more than 6 million copies worldwide during its first week on sale during the last few days of the fiscal quarter. The title helped GameStop's results during the period and will likely do so in the current quarter. But what they see as a lack of similar blockbusters for the remainder of the year worries some investors.

"Looking forward, we see less potential for sizable earnings beats as software growth slows," Higginbotham wrote. He rates GameStop "Neutral."

The video game industry is doing well despite the economic downturn, but some analysts wonder how long the good times will continue. GameStop is also facing growing competition from mass retailers like Best Buy Co. and Wal-Mart Stores Inc. as video games become more mainstream and attract a wider audience that may not go to a specialty retailer to buy games.

Still, most analysts are optimistic about the company. Of 16 analysts, 11 have "Buy" or "Strong Buy" ratings on the stock, according to Thomson Financial. Tony Wible of Citi Investment Research said GameStop's results "reflect the secular push behind gaming and are unprecedented in light of the tough economic backdrop."

"The market does not seem to concur with our thesis," added the analyst, who rates GameStop "Buy." He thinks some investors may believe the current gaming cycle has peaked, and "short sellers have become more emboldened now that the launch of GTA has occurred." GTA IV, which was delayed from last fall, was probably this year's most anticipated game.

But Wible noted that it's still early the latest console cycle, as only 30 percent of people who own gaming systems from the previous generation (such as the PlayStation 2) own current-generation ones (the Nintendo Wii, the Xbox 360 and the PS3).

Unlike Higginbotham, Wible sees a strong game lineup for the back half of this year, for both consoles and PCs. He called Thursday's sell-off "unwarranted" and an "excellent buying opportunity."

Shares of Grapevine, Texas-based GameStop, the world's largest video game retailer, fell $1.99, or 3.9 percent, to $48.85. In the past 52 weeks, the stock has traded between $34.79 and $63.77.