GameStop Corp (GME) stock is a bargain. It has $9.066 billion in cash after its recent 0% $2.68 billion convertible note offering, which closes on Tuesday, or $20.27 p/sh, plus $492.4 million in Bitcoin ($1.10), or $21.37 per share. That means the stores, which are now profitable, are almost available for free.

Moreover, as this article will show, its sum-of-the-parts (SOTP) value is now over $42.00 per share.

GME closed at $22.14 on Friday, June 13. That is down $7.44 over the last week from $29.58, or -25.15%. What is going on here? Why is GME so cheap?

This article will discuss what GME stock is worth, after this week's many developments: 

• June 10 Q1 earnings release,
• a new 0.00% convertible senior note offering announced on June 11 (the second one in the last 3 months),
• the pricing and conversion feature announcement on June 12, for the “upsized” senior convertible note offering, which could raise up to a net $2.68 billion,
• the final closing of the new senior convertible notes is set for Tuesday, June 17 (will the offering be further upsized?),
• and the very interesting remarks from GME's CEO and largest shareholder, Ryan Cohen, made at this week's June 12 virtual annual meeting.

Before this week's events, I discussed GME's valuation, based on a Sum-of-the-Parts (SOTP) valuation method in a June 1 Barchart article ("GameStop's Bitcoin Purchase and Potential Debt Conversion Increases GME's Value"). Today's article will update that SOTP analysis.

(By the way, as seen below, I am a shareholder in GME, my only stock holding. I am very focused on this company.)

Strong Q1 Earnings, Free Cash Flow, and Bitcoin Cost

GameStop is now profitable, its first ever since 2019, as CEO Ryan Cohen pointed out in the June 12 annual meeting.

For fiscal Q1 ending May 3, it made net income of $44.8 million on sales of $732.4 million, a 6.1% net margin. Excluding impairment charges, its adj. net income was $83.1 million (11.3 net margin). 

Adj. earnings per share (EPS) were 19 cents ($0.186 based on 447.1 million shares) and 17 cents on a diluted basis (i.e., $0.167 if its $1.48 billion senior notes are converted - the conversion price is $28.95 per share).

Sales were 16.9% lower than last year's $881.8 million, but GameStop had fewer stores open during the quarter. Last year, GameStop closed 590 stores, and it is continuing this activity this year. So far, we don't know how many stores were closed.

Moreover, on May 4, the day after its Q1 closing, it sold all its Canadian stores and e-commerce business. That represented 4.83% of its Q1 sales (i.e., $42.6m/$881.8 million), but GameStop has already made a $18.3 million impairment charge in Q1. In its Q1 10-Q filing on June 10, GameStop said it will sell its French stores, but it has already posted a $17.2 million impairment charge. So, its Q2 revenue will be lower as well. These impairment charges don't matter that much, since they won't affect future sales and earnings, and the cash goes onto the balance sheet (and lowers lease liabilities).

The bottom line this pruning has made the company more profitable. Here is what Ryan Cohen said on June 12 at the virtual annual meeting:

  “The first quarter of 2025 was our first profitable quarter since 2019. It's the result of cutting costs, reducing excess inventory, streamlining headcount, closing unprofitable stores, exiting underperforming geographies, and focusing on the core fundamentals of the business.”

As a result, GameStop generated strong free cash flow (FCF) during Q1. This can be seen in the table below, taken from Schedule III of the company's earnings release (and using my analysis).

It shows that the stores are generating strong free cash flow. For example,  without including the huge amount of cash on the balance sheet, which generated $56.8 million in interest income, the stores made $133 million in FCF. That represented 18% of sales. We can use that to forecast the value of GameStop's stores in the SOTP valuation.

Sum of the Parts (SOTP)

Stores. First, let's value the stores. Analysts now project sales this year ending Jan. 31, 2026, will be $3.52 billion and $3.14 billion next year. So, its next 12-month (NTM) sales will average $3.33 billion.

If we assume the company can generate 18% FCF margins going forward (not including interest), FCF would be:

  $3.33 billion x 0.18 = $600 million FCF

Using a 5% FCF yield (i.e., 20x FCF), they are worth $12 billion:

  $600m x 20 = $12 billion

That is also equal to 3.6x forward sales. But I like using a 5% FCF yield metric for the following reason: Anyone buying the stores would have the option of keeping their cash in the bank and making 5% on the $12 billion - i.e., $600 million. GameStop would not likely sell the stores unless it could get at least $12 billion (i.e., a 5% FCF yield). They are making the same as holding cash (if they sold for less than $12 billion, they would make less interest than the FCF).

Since there are now 447.333 million shares outstanding as of June 5(seen on the first page of the 10-Q filing), the stores are worth almost $27 per share:

  $12b / 447.333m shs = $26.83 p/sh

Cash. On May 3, GameStop had $6.3858 billion in cash on its balance sheet. That works out to $14.28 per share. However, after deducting $1.4807 billion in 0.00% Senior Convertible Notes due April 1, 2030, (5 years from now) on the balance sheet now (since it is not convertible into GME Class A shares until GME rises to $29.85 per share - see my last article), there is almost $11 p/sh in net cash:

   $6,385.8 billion cash

- $1,480.7 billion convertible note debt

= $4,905.1 billion net cash, or (after dividing by 447.333m shs), $10.97 net cash per share

But, as mentioned earlier, it has recently announced a new $2.68 billion 0.00% Senior Convertible Note due June 15, 2032 (7 years from now), that closes on June 17. It is also slightly possible that the company could close a higher amount.

As a result, here is where the company's cash stands.

   $6,385.8 billion (May 3) 

+ $2,680.0 billion (June 17)

= $9,065.8 billion (Q2), or $20.26 per share (i.e., not assuming conversion of either Senior convertible note).

In other words, given the $22.14 GME price, gross cash now equals 91.5% of the stock price.

By the way, we should value this cash at more than just its present price. For example, I estimate GameStop is making at least 4% on its balances. Here is why. 

On Feb.1, 2025, GameStop had $4.7569 billion on its balance for two months until April 1, when it received $1.4807 billion in 0.00% Sr Convertibles due 2030, or $6.2376 billion for the last month (before FCF generated cash). So, the weighted average balance was $5.25 billion during the quarter, and interest earned was $56.9 million:

  $56.9m interest / $5,250 billion avg cash = 0.0108, i.e., 1% for 3 months or 4% annually

Therefore, we can reasonably now expect that over the next quarter (before any new Bitcoin purchases), GameStop will generate $91 million per quarter in interest:

  $9,065.8 billion x 0.01 = $90.66 million quarterly, or $362.60 million annually

Since these two convertible notes bear zero interest, there is no interest cost. As a result, the cash per share is worth 81 cents in interest income:

  $362.6/447.333 m shares = $0.81 p/sh

The bottom line is that there is $20.26 in net cash per share, plus $0.81 could be generated. The net cash is therefore

  $9,065.8b gross cash

- $4,088.7b convertible note debt

+ $ 362.8 m expected annual interest

= $5,339.9 billion net cash or $11.94 per share

Bitcoin Holdings (BTC). As of May 3, GameStop held 4,710 Bitcoin (BTC). Coinbase now says there are worth $104,649 per Bitcoin today. So, the total value is:

   4,710 x $104,649 = $492.892 million

Since there are 447.333 million shares outstanding, that works out to $1.10 per share.

However, let's say that all GameStop does is use its annual interest and free cash flow (FCF) to buy more Bitcoin. That means it could spend $600 million (using an 18% FCF margin) plus $362.6 million in interest:

  $600m FCF + $362.6m interest = $962.6m new cash

  $963m / $105K BTC = 9,172 BTC, or 13,882 total (including today's holdings) 

In other words, in one year, GameStop could hold over 13,000 BTC without having a lower cash balance. If BTC rises to $120K, that would make it worth:

  13,000 BTC x $120K p/BTC = $1.56 billion

That equals $3.49 per share.

Total SOTP

As a result, here is a conservative estimate now of what GME stock is worth per share:

  Stores ……… $26.83  (assumes an 18% FCF margin)

  Net Cash …. $11.84  (assumes no conversions and 4% annual interest rate on gross cash)

  Bitcoin ……  $ 3.49  (assumes future purchases of Bitcoin and a rise to $120K)

Total SOTP .... $42.16 per share

That is over +90% higher than Friday's price of $22.14. It is also higher than my previous SOTP value of $39.63 per share in my last Barchart article.

What Could Happen

I expect that GameStop could potentially make a major acquisition. There are two reasons for this. One, this week's convertible note stated added in a new phrase (compared to the prior convertible note) for its use of funds: “and potential acquisitions.” That highly implies some or all of the $2.68 billion could be used to buy a cash flow-producing business.

Second, Ryan Cohen highlighted GameStop's collectible business segment in his short remarks during the annual meeting. Here is the second paragraph of his statement:

  “We are focusing on trading cards as a natural extension of our existing business. The trading card market - whether it's sports, Pokémon, or collectibles - is aligned with our heritage. It fits our trade-in model … Unlike hardware, it has high margin potential. It's a logical extension.”

As a result, don't be surprised if GameStop makes some sort of acquisition in the collectibles market.

Why has the stock fallen so much? Keep in mind that the investors in the notes sold this week were QIBs (qualified institutional investors). In return for accepting no interest, they wanted a very low conversion price. So, they immediately sold short GME shares, expecting that the conversion price would be set at about a 37.5% premium over the stock price (i.e., as was done last time).

In the end, GME management set the conversion price at $29.81, only 32.5% over the reference price. This is even lower than the $29.85 conversion price for the 2030 converts sold in March.

However, after June 20, 2029 (in four years), GameStop can redeem the notes and force conversion of the 2032 notes (i.e., prior to the 7-year redemption). The trigger for this is if GME stock trades over $37.58 for 20 days during any 30-day trading period after June 20, 2029. This is slightly lower than the $38.81 price of the first set of converts. Moreover, GameStop can pay cash for the conversion value, which could reduce any potential dilution. 

That last fact is another reason why QIBs shorted the stock. In effect, they have bought warrants in GME, and they needed to see the conversion price set very low.

That means that once these converts close on June 17, the pressure for shorting GME stock could ease. After all, these new QIBs will only make money on their investment if GME rises over $28.91 per share (for these converts) and $28.95 for the 2030 converts.

Given that its SOTP value is now worth over $42.00 per share, there is every reason that this will occur.

On the date of publication, Mark R. Hake, CFA had a position in: GME . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.