GameStop Is a Very Weak Company Financially

By Douglas A. McIntyre Published Jun 7, 6:45AM EDT

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GameStop Corp. (NYSE: GME | GME Price Prediction) 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?

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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About the Author Douglas A. McIntyre →

Douglas A. McIntyre is the co-founder, chief executive officer and editor in chief of 24/7 Wall St. and 24/7 Tempo. He has held these jobs since 2006.

McIntyre has written thousands of articles for 24/7 Wall St. He is an expert on corporate finance, the automotive industry, media companies and international finance. He has edited articles on national demographics, sports, personal income and travel.

His work has been quoted or mentioned in The New York Times, The Wall Street Journal, Los Angeles Times, The Washington Post, NBC News, Time, The New Yorker, HuffPost USA Today, Business Insider, Yahoo, AOL, MarketWatch, The Atlantic, Bloomberg, New York Post, Chicago Tribune, Forbes, The Guardian and many other major publications. McIntyre has been a guest on CNBC, the BBC and television and radio stations across the country.

A magna cum laude graduate of Harvard College, McIntyre also was president of The Harvard Advocate. Founded in 1866, the Advocate is the oldest college publication in the United States.

TheStreet.com, Comps.com and Edgar Online are some of the public companies for which McIntyre served on the board of directors. He was a Vicinity Corporation board member when the company was sold to Microsoft in 2002. He served on the audit committees of some of these companies.

McIntyre has been the CEO of FutureSource, a provider of trading terminals and news to commodities and futures traders. He was president of Switchboard, the online phone directory company. He served as chairman and CEO of On2 Technologies, the video compression company that provided video compression software for Adobe’s Flash. Google bought On2 in 2009.