GameStop (GME) appears an attractive pick given a noticeable improvement in the company's earnings outlook. The stock has been a strong performer lately, and the momentum might continue with analysts still raising their earnings estimates for the company.

The upward trend in estimate revisions for this video game retailer reflects growing optimism of analysts on its earnings prospects, which should get reflected in its stock price. After all, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements. Our stock rating tool -- the Zacks Rank -- has this insight at its core.

The five-grade Zacks Rank system, which ranges from a Zacks Rank #1 (Strong Buy) to a Zacks Rank #5 (Strong Sell), has an impressive externally-audited track record of outperformance, with Zacks #1 Ranked stocks generating an average annual return of +25% since 2008.

For GameStop, there has been strong agreement among the covering analysts in raising earnings estimates, which has helped push consensus estimates considerably higher for the next quarter and full year.

The chart below shows the evolution of forward 12-month Zacks Consensus EPS estimate:

12 Month EPS

Current-Quarter Estimate Revisions

The company is expected to earn $0.08 per share for the current quarter, which represents a year-over-year change of +166.67%.

Over the last 30 days, the Zacks Consensus Estimate for GameStop has increased 166.67% because one estimate has moved higher compared to no negative revisions.

Current-Year Estimate Revisions

For the full year, the earnings estimate of $0.47 per share represents a change of +42.42% from the year-ago number.

In terms of estimate revisions, the trend for the current year also appears quite encouraging for GameStop. Over the past month, one estimate has moved higher compared to no negative revisions, helping the consensus estimate increase 161.11%.

Favorable Zacks Rank

The promising estimate revisions have helped GameStop earn a Zacks Rank #1 (Strong Buy). The Zacks Rank is a tried-and-tested rating tool that helps investors effectively harness the power of earnings estimate revisions and make the right investment decision. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Our research shows that stocks with Zacks Rank #1 (Strong Buy) and 2 (Buy) significantly outperform the S&P 500.

Bottom Line

Investors have been betting on GameStop because of its solid estimate revisions, as evident from the stock's 8.3% gain over the past four weeks. As its earnings growth prospects might push the stock higher, you may consider adding it to your portfolio right away.

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GameStop Corp. (GME) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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