The Rumor Mill Says GameStop Might Be Bought Out

At least that is what might be recently moving the stock higher.

GameStop(GME) is spiking on rumors that it may be acquired.

The video game retailer is climbing 5.6% to $19.31 in afternoon trading as investors mull the probability of it being taken over by a private equity group.

"The company generates strong free cash flow and is not getting respect as a public company," Sterne, Agee & Leach analyst Arvind Bhatia says. Thus, a takeover by a private equity firm, according to Bhatia, would make sense.

It would make sense as it is one of the few big time sellers of used games where the margins are incredibly high. The regular game retail side of it has to compete with many different sources while the used game side is a goldmine.

I know many gamers that trade in their new games as soon as they pass them and then buy any used games that they might like. They then turn in the used games when a new title they like comes out. That cycle is highly profitable for a company like GameStop who is making a profit on both sides of the trade-in.

The best part is that Wal-Mart and Best Buy cannot compete with this model since they don't have a trade in system in place. (If they do then it isn't advertised enough to clue a gamer like me in on it.) In any case I would love to see the rumored take-out price to see what kind of premium the stock might have.