Ever since GameStop (GME) achieved meme stock fame in 2020, it has traded at valuations that seem entirely detached from its underlying fundamentals. Retail investors swept up in the social-media-fueled frenzy, particularly on Reddit’s r/wallstreetbets, have turned this once-sleepy video game retailer into a symbol of high-stakes speculation.
Now, to their credit, the company’s management has exploited this situation to issue new shares at premium prices, which, in turn, has led to a sizeable cash war chest. It’s not surprising that bullish investors hope that GameStop can, one way or another, leverage its resources to change its direction and validate its hefty valuation. Yet, I think it’s clear GameStop’s core operations are eroding, a trend set to continue destroying shareholder value. Accordingly, I am bearish on GME Stock.
How GameStop Turned Hype into Cash
GameStop’s management saw an opportunity in the wild swings of its share price and capitalized. Through multiple at-the-market (ATM) equity offerings, the company increased its share count from roughly 259 million in 2020 to about 447 million today. Share issuances recycled market enthusiasm into immediate liquidity, enabling GameStop to wipe out nearly $900 million in net debt and move from a precarious position in 2019 to a net cash surplus of about $4.15 billion today.
What’s intriguing here is that this $4.15 billion net cash position equates to over 40% of Gamestop’s current market cap. The bullish thesis hinges on the idea that the company might channel this liquidity into bold new ventures, potentially even in the crypto arena, like we’ve seen with Strategy (MSTR).
Coincidentally, in early February 2025, GameStop CEO Ryan Cohen sparked a market frenzy by posting a photo of himself with Michael Saylor, the Bitcoin advocate and chairman of Strategy, the largest corporate holder of Bitcoin. GameStop management has been tight-lipped ever since regarding a possible partnership or how the gaming retailer plans to put its cash hoard to work.
Downbeat Core Business Reality
Yet even this optimistic argument falters when weighed against GameStop’s deteriorating fundamentals. If we treat its cash as a distinct asset, the rest of the company appears valued at roughly $6 billion. Despite some hefty cost-cutting measures, GameStop’s operational performance continues to hang. In its most recent quarter, revenues declined by more than 20%, gross profits shrunk, while the company remained in the red at the operating level.
The worst part is that GameStop can do nothing to help itself. The heart of the issue lies in a structural shift that has overtaken the gaming industry. GameStop thrived in an era when physical discs and console bundles were the norm. Today, consumers have pivoted entirely to digital sales and subscription models. Mobile gaming, cloud-based services, and subscription platforms only accelerate this trend, leaving fewer reasons for customers to visit a brick-and-mortar store.
Indeed, GameStop’s collectibles and minor digital initiatives have not filled the void left by declining in-store traffic, a shortfall apparent in its global footprint, which has been shrinking through store closures in Europe and the U.S.
Irrational Valuations Never Last
Considering these headwinds, GameStop’s valuation is excessive. The market is pricing the company as though its ample cash reserves and potential pivot plans are permanent lifelines. In reality, all prominent Wall Street analysts project ongoing losses, suggesting that any fair valuation should sit below the net cash figure to account for the cash burn.
A key factor is that meme-stock fervor still clings to GameStop, albeit not at the fever pitch of 2021. The lingering enthusiasm may be enough to temporarily buoy the stock price but also sets up unsuspecting investors for disappointment. As the company burns cash to cover operational deficits, like payroll, leases, distribution costs, etc., its now-impressive balance sheet will inevitably shrink. Sooner or later, fundamental performance typically catches up to share price, and GameStop might struggle to maintain investor confidence once its cash runway starts to thin.
Is GameStop a Buy, Sell, or Hold?
Wall Street is bearish on GME stock, with all six analysts covering the stock rating it a Sell over the past year. Michael Pachter from Wedbush has slapped a price target of $10 per share on GME stock, which implies the share price is expected to decline by more than 50% over the next twelve months.
GameStop Stock Bears in Full Control
From a distance, it’s easy to see the appeal of GameStop as a turnaround story. The board has changed, new leadership has promised innovation, and the company is now flush with funds. But in an industry relentlessly marching toward digital and subscription-based models, having a pile of cash only delays the day of reckoning if the underlying business keeps losing relevance. Ultimately, when the meme-fueled aura lifts, investors could be left with little more than an empty storefront in a market that moved on long ago.
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