GameStop Is a Very Weak Company Financially

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24/7 Insights

  • GameStop Corp. (NYSE: GME) is not worth its current market cap of $20 billion.
  • Its business model and quarterly results leave much to be desired.

Keith Gill (aka Roaring Kitty), the online mover and shaker of stock prices, has been back trading GameStop Corp. (NYSE: GME) shares. That has driven them up by high double-digit percentages some days. People have joined him, hoping to get rich fast. However, the stock has traded down for some hours over this period, so the fortunes are only for the lucky. Gill plans to return to YouTube for the first time in three years. Traders have gone wilder, and there has been another buying frenzy.

What Is GameStop Worth?

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A poor business model and weak results.

What is GameStop worth? Not its current market cap of $20 billion, which is based on a stock price of $62 per share. It is better to look back at the price before the feeding frenzy. Four years ago, it traded for $5. After the massive run-up three years ago, but before the current one, the stock traded at $11. Based on its financial results, these lower prices are closer to a rational valuation.

GameStock is little more than a dog based on its earnings. CNBC states, “The video game retailer posted net sales of $881.8 million for the period. That’s down 29% from $1.237 billion a year prior. To be sure, the company’s quarterly loss of $32.3 million was narrower than the year-earlier period’s of $50.5 million.”

GameStop’s business model is hampered by its physical stores selling hardware, which was 57% of revenue in the most recent quarter. Although that number is shrinking, GameStop has over 4,000 physical stores to sell these. That means rent payments and people to run the locations. The company carries $387 million in operating lease obligations on its balance sheet.

Great investors like Warren Buffett and Peter Lynch have always told investors to look at company financial fundamentals. Concerning GameStop, not many people have gotten this message.

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