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Wall Street’s Most Hated Stock is About to Break Out

GameStop Corp. (GME) has been a thorn in the side of analysts for years. Indeed, Wall Street has been calling for GameStop’s death for what seems like an eternity, all while the company has continued to thrive.

In fact, it appears investors still haven’t learned their lesson. GameStop is currently the most-shorted stock in the S&P 500, with short interest at 42% of float. That could prove to be a costly mistake.

You see, in spite of Wall Street’s pessimism, GameStop’s chart shows that a breakout to the upside could happen as early as this week.

Unloved and Undaunted

For over 15 years, GameStop has been the undisputed leader in retail gaming, and it has captured the majority of the industry’s revenue.

Now, avid gamers are quick to say how much they hate the store. The reasons are multiple: too mainstream, too overpriced, etc. But here’s the thing – they continue to shop there. And the reason why is simple: convenience.

More often than not, gamers can find what they’re looking for or they can have the store order it for them. Plus, when they’re done with a game, they can sell it right back to GameStop. The previously-played game market has been, and continues to be, a key source of sustained revenue.

Meanwhile, when friends and family buy gifts for a gamer, they rely on the deep expertise of GameStop employees to help them make purchases. The floor staff are almost always seasoned experts, and it gives the company a huge edge over the competition.

Going By the Numbers

The video game business is booming and is showing no signs of slowing down.

According to research firm Newzoo, the gaming industry is worth $83.6 billion dollars. In the United States alone, the industry is projected to grow 30% by 2019 to more than $100 billion.

Meanwhile, GameStop has handily outperformed both the consumer discretionary sector and the broad market over the last five years.

To be fair, the stock fell to $31.92 in December 2014 from a 2013 high of $57.59. But shares have roared back with a vengeance and are up 38% since January.

Compare that to its brick-and-mortar competitors: Target Inc. (TGT) is up just 6% over the same period, while Wal-Mart (WMT) and Best Buy (BBY) are down 19% and 16%, respectively.

GameStop also trades at attractive valuations. Shares trade at just 11.2 times forward earnings, which represents a 43% discount to its peers. Better still, GameStop has an EV/EBITDA ratio of just 5.3.

And with nearly 70% of total sales generated in the red-hot U.S. market, GameStop is largely insulated from currency headwinds.

Why You Should Buy GameStop Now

As strong as the company’s fundamentals look, it’s really the technical chart that commands urgency.

You’ll recall that the stock is up 38% since January. Right now, shares are in an ascending triangle pattern. Take a look:

Breakout Imminent!: Gamestop Corp. (GME) Shares Ascend the Triangle

From a technical point of view, an ascending triangle pattern shows that two things are happening:

  1. Shares are testing resistance, and
  2. The support level is rising.

This indicates that share demand is increasing against resistance, and the potential for a breakout to the upside is high. Once shares break through resistance under the increased momentum, the resistance level often becomes support.

Plus, short interest is so high that a squeeze is becoming more likely, which would accelerate the breakout even further.

Bottom line: Now’s the perfect time to buy.

On the Hunt,

Jonathan Rodriguez