Why GameStop Corp. Fell 11.3% in May

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What: Shares of GameStop fell 11.3% in May 2016, according to data from S&P Global Market Intelligence

So what: The slide started early. GameStop co-founder and former CEO Dick Fontaine announced

Finally, the company reported

Now what: The company is working hard to shed its traditional bricks-and-mortar retail core in favor of a more direct digital distribution system. But that's not an easy game to play, because every step in the direction of juicier margins comes with a side of lost revenue. It's a tricky balancing act. If GameStop botches this important transformation, it would hardly be the first old-school retailer to die a digital death.

As dangerous as this trek may be, it is also crucial to make these moves before it's too late. GameStop is not only fighting e-commerce specialists and other traditional retailers with an online arm, but game consoles themselves come with their own online game-buying portals these days. Traditional game discs are becoming quaintly outdated. Running the largest game retailer store chain is kind of like dominating the market for buggy whips or telegraph services.

Today, GameStop shares have fallen 35% over the last 52 weeks. The stock trades for a minuscule 7.6 times trailing earnings and 1.4 times book value. If you think the company is destined to mishandle the digital transformation, these prices look correct. Otherwise, you could set up a small stake to bet on a rewarding turnaround story from a low starting price.

Personally, I'll stay on the sidelines. Digital sales account for less than 13% of GameStop's quarterly sales, leaving me unconvinced that the company is leaning into this next-generation business hard enough.

The article Why GameStop Corp. Fell 11.3% in May

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