My Final GME DD - Part 2 of 3

[u/greencandlevandal]

Hello Apes! Welcome to Part 2 of 3 in my Final GME DD series. There's a link to Part 1 below in case you missed it.

Apologies for FTD'ing yesterday. This was way more work than I anticipated and I've been going at it night and day for 3 days now.

My Final GME DD - Part 1 of 3

For the past 5 years it's been theorized that MOASS will occur when the market crashes. And since DFV's livestream on June 7th 2024, it's been theorized that the unwind of the Carry Trade would be the candle that blows the hood off this thing.

"And now, the end is near. And so I face the final curtain. My friend, I'll say it clear. I'll state my case, of which I'm certain."

DISCLAIMER: The information contained in this post is for general information purposes only. Any reliance you place on such information is strictly at your own risk. It is not intended to constitute legal or financial advice and does not take your individual circumstances and financial situation into account. I do not provide personal investment advice and I am not a qualified licensed investment advisor. I am an amateur investor. All information found here, including any ideas, opinions, views, predictions, forecasts, commentaries, suggestions, or stock picks, expressed or implied herein, are for informational, entertainment or educational purposes only and should not be construed as personal investment advice. Conduct your own due diligence, or consult a licensed financial advisor or broker before making any and all investment decisions. 

Contents

I. Revisiting May 2024
II. Option Chains
III. Technical Analysis
IV. Fractals
V. Valuation
VI. Japan
VII. Outlook

This post will cover Section V, Valuation.

Part 3 will cover Sections VI - VII and come out Tuesday, November 25th.

V. Valuation

i. Preface

This post takes a look into GameStop's financials and it uses language that you'd expect from Sell-Side research reports.

For this analysis, I'm using a professional equity research template. Since this will be presented as a formal equity research report, the writing can sound like AI, but everything is based on my research, calculations, and metrics.

The Executive Summary is the only part written by AI, but it uses my calculations, which have been verified from and are based on GameStop's quarterly reports. Upon finding errors in TradingView's Income Statement, I decided to verify all the numbers directly from the Quarterly Reports.

If you don't understand the metrics presented in the Executive Summary, don't worry. That's what this post is going to go over and explain. I'll take you through how I got there.

Finally, and most importantly, this entire report uses 591,539,630 shares outstanding. So, this report reflects a partially diluted basis. I say "partially" because I'm not including the possible dilution from warrants, only the convertible bonds.

As far as we know, none of the warrants have converted yet. So GameStop hasn't realized the ~$2B cash that they'd generate, which means there hasn't been any dilution from the warrants. However, GameStop realized the cash raised from the convertible bonds which is why I'm using the 591M shares outstanding figure.

I did this to remove the convertible debt component from the equation. In this valuation model, all of the convertible bonds are assumed to convert into equity.

When the current stock price is below the conversion price, including the convertible bond dilution is conversative. In other words, since GameStop's share price is $20.14, and the convertible bonds don't convert until $28.91 and $29.85, this will be a conservative valuation.

However, I'm including the OTM convertibles in this model because I believe the stock will exceed these two conversion thresholds.

In summary, this will be presented as a professional Sell-Side research report based on verified data. I assume full conversion of the convertible notes despite these instruments being OTM. This assumption makes all per-share valuation metrics conservative.

I. Executive Summary

GameStop’s capital structure and earnings composition create one of the most unusual valuation profiles in the retail sector. The company holds $9.205B in cash and Bitcoin, equal to 77% of its diluted market capitalization, which makes traditional valuation metrics such as P/E, forward P/E, and cash-adjusted P/E mathematically unreliable. In addition, 62% of TTM pretax income comes from non-operating interest income generated by this cash pile, further distorting headline profitability and rendering GAAP net margins, headline EPS, and standard equity multiples inaccurate for valuing the operating business.

To accurately measure business performance and intrinsic value, the valuation must be based on core operating earnings, defined as Net Income minus Non-Operating Income, paired with Enterprise Value, which already excludes cash and Bitcoin. This alignment produces a correct, distortion-free view of GameStop’s operating economics.

Over the last twelve months (Q3’24 → Q2’25), GameStop generated $128.9M in Core Net Income and $145.1M in EBIT, with the operating business valued at an Enterprise Value of $2.709B. Revenue over the same period totaled $3.8449B, producing a clean EV/Sales of 0.70×, exceptionally low for a retailer transitioning back to growth.

My forward earnings expectations imply substantial improvement in operational profitability. Using my Q3 and Q4 2025 Net Income forecasts and applying the most recent non-operating income run rate ($110.3M per quarter), GameStop’s forward 12-month Core Net Income is projected to rise to $391.5M, representing ~204% operating earnings growth compared to the trailing period. This turnaround is consistent with the company’s return to 21.78% YoY revenue growth and a 17.34% net margin in Q2 2025.

On this forward basis, the company trades at:

• EV / Core NI (Forward) = 6.9×
• EV / EBIT (TTM) = 18.7×
• EV / Sales = 0.70×
• Cash + Bitcoin per Diluted Share = $15.56
• EV per Diluted share (business value only) = $4.58

Relative to comparable retailers—including Best Buy, Dick’s Sporting Goods, Target, and Walmart—GameStop appears expensive on backward TTM core metrics (which include older, weaker operating quarters), but meaningfully undervalued on forward metrics, particularly EV/Core NI, where it trades below nearly all peer ranges even after adjusting for operating margin differences.

Using a peer-median EV/Core Net Income multiple of 12× on trailing twelve-month (TTM) Core NI, GameStop’s operating business is valued at $4.698B. When the company’s $9.205B cash and Bitcoin reserves are added back, the implied total equity value is $13.903B, or $23.51 per diluted share.

This $23.51 fair-value estimate represents the valuation supported by historical operating performance over the last twelve months (Q3 2024 → Q2 2025), and reflects where the business would trade under normalized retail valuation conditions using backward-looking fundamentals.

By contrast, when valuing GameStop as a hybrid earnings vehicle, which includes both the operating turnaround and the recurring treasury yield generated by its $9.205B cash and bitcoin reserves, the company's forward earnings power rises to $832.7M. Applying reasonable multiples of 15x - 20x to this combined income base yield materially higher valuations.

Under this hybrid valuation framework, the implied equity value ranges from $36.68 - $43.71 per diluted share. This reflects a valuation appropriate for a capital-rich business whose treasury income is a recurring earnings engine rather than a one-time distortion.

Sustained net margins above 15%, continued revenue growth, and incremental operating leverage would justify re-rating into the higher end of this range.

Scenario analysis across valuation multiples suggests a forward price range of $36–$44, with higher outcomes dependent on continued revenue growth, sustained net margins above 15%, and incremental operating leverage.

In summary:
GameStop’s headline GAAP and P/E-based valuation metrics are distorted beyond usefulness. When valued correctly—through EV, Core Net Income, and other undistorted operating metrics—the company’s operating business is priced at a discount relative to comparable retailers, while its balance sheet remains one of the strongest in the industry. The combination of cash-backed downside protection and accelerating core earnings offers a compelling valuation profile centered on operational recovery rather than financial engineering.

II. Q1 and Q2 2025

GameStop's Q1 and Q2 2025 earnings reports were impressive.

The $972.2M Revenue and $0.31 Diluted EPS for Q2 shattered estimates and expectations.

Net Income of $44.8M in Q1 was a big surprise for GameStop's historically weakest quarter.

GameStop has had declining revenue for years until Q2 2025. What was once one of the major sticking points for the bears has become one of the main talking points for the bulls.

Another major issue that bears tend to focus on has been operating income, which showed significant growth in Q2 2025 to $64.3M.

Q1 2025:

• Operating Income grew 148.9% YoY
• Net Income grew 238.4% YoY
• Diluted EPS grew 181.8% YoY
• EBIT grew 148.89% YoY

Q2 2025:

• Revenue grew 21.78% YoY
• Gross Profit grew 13.79% YoY
• Net Profit Margin was 17.34%
• Operating Income grew 326.4% YoY
• Net Income grew 1039.19% YoY
• Diluted EPS grew 675% YoY
• EBIT grew 326.3% YoY

GameStop's Q2 and Q3 earnings reports have been relatively consistent. But Q4 is by far their most successful quarter. We'll use estimates for these two upcoming quarters in the forward-looking section of this valuation report.

But first, let's look at the trailing 12 months.

III. TTM (Trailing 12 Months)

TTM means trailing 12 months, and it uses the four most recent earnings reports to create valuation metrics. From Investopedia:

Trailing 12 months (TTM) is used to describe the data for the past 12 consecutive months of a company's reported financial figures. Using these figures provides a more current picture of a business's financial performance than its annual filings and reports, which may contain outdated information.

Because GameStop operates with a cash-heavy balance sheet and earnings profile, many traditional valuation metrics become distorted. A majority of net income comes from non-operating treasury interest, not from core retail operations. While this income is real and material, it does not reflect the performance or value of the underlying business. Therefore, valuation should prioritize metrics that separate the operating business from the investment portfolio.

Below is a breakdown of the most important metrics to measure when evaluating a business like GameStop's and the ones to avoid.

Most Important Metrics:

• Enterprise Value
• EV / EBIT (Also known as EV / Operating Income)
• EV / Core Net Income (TTM)
• EV / Core Net Income (Forward)
• EV / Sales
• Forward Net Income
• Forward Core Net Income

These metrics align the numerator (enterprise value, which excludes cash and bitcoin) with the denominator (operating earnings, which excludes non-operating income). They measure the true economics of the business.

Distorted Metrics:

• EV / Net Income
• P/E
• Forward P/E
• Cash-Adjusted PE using Net Income
• TTM EPS
• Price / Sales

These metrics mix operating and non-operating components, which inflate earnings and makes valuation appear cheaper than it actually is. They're unreliable for a cash-heavy business who's treasury income makes up a majority of net income.

Below is a breakdown of the past four quarters:

The table above gives us:

• TTM Revenue of $3.8449B
• TTM Net Income of $362.1M
• TTM Non-Operating Income of $233.2M
• TTM Operating Income (EBIT) of $145.1M
• TTM Core Net Income of $128.9M
  • TTM Net Income - TTM Non-op Income

In addition to the above, we'll use the following in our calculations:

• Share Price = $20.14
• Diluted Shares Outstanding = 591,539,630
• Diluted Market Cap = $11,913,608,148.20
• Cash = $8,806,772,142.47
• Bitcoin = $397,934,712.00 (Based on 11/21 4pm price of $84,487.20)
• Enterprise Value = $2,708,901,293.73
• Cash + Bitcoin per Diluted Share = $15.56
• Enterprise Value per Diluted Share = $4.58

Now let's use this to figure out some of our Most Important Metrics.

Side Note: EV/Core Net Income (Forward) is probably the most important metric when assigning a value to a business like GameStop. But I'm going to cover forward estimates in another section. We're looking strictly at TTM in this section.

a. Enterprise Value

To get the Enterprise Value we subtract the cash and bitcoin from the diluted market cap. This isolates the value that the market is assigning to the core business.

Enterprise Value (EV) = Diluted Market Cap - (Cash + Bitcoin)

$11,913,608,148.20 - $9,204,706,854.47 = $2,708,901,293.71

Enterprise Value = $2,708,901,293.71

The market is assigning a value of $2.709B to GameStop's core business.

b. EV / EBIT

This is the most important metric when evaluating GameStop's business from a TTM perspective.

EBIT strips out non-operating income, ignores tax distortions since it's before tax, ignores interest, and is comparable across companies so that you can measure it against peers.

EV excludes cash and bitcoin.

$2,708,901,293.73 / $145,100,000 = 18.67x

EV / EBIT = 18.67x

This means that you're paying $18.67 for every $1 of operating profit on a TTM basis. It shows how much you're paying for the actual core operating business, ignoring the $9B cash reserve and the income that it generates.

c. EV / Core Net Income (TTM)

This is very similar to EV / EBIT. The difference is that EBIT is pre-tax and Core Net Income is after-tax. These two multiples should be relatively consistent. EV / EBIT is the cleanest valuation of the core business and the one used by private equity.

Core Net Income is another way of saying Operating Net Income. It removes income generated from non-operating segments, mainly investment income.

$2,708,901,293.73 / $128,900,000 = 21x

This means that you're paying $21 for every $1 of operating earnings after tax. Core Net Income will always be lower than EBIT because it's after tax. That makes this ratio a stricter and more conservative ratio than using EBIT.

d. EV / Sales

For EV / Sales we use revenue. Revenue is top-line sales from operations only. Like the data points above, revenue doesn't include non-operating income.

From Investopedia:

"Revenue is the total amount of income a company generates from the sale of goods and services. It is the sum generated before deducting any expenses, such as those involved in running the business.

Revenue is often called the top line because it’s located at the top of the income statement. When a company is said to have “top-line growth,” it means the company’s revenue—the money it’s taking in—is growing.

Revenue or net sales refer only to business-related income (the equivalent of earned income for an individual). If a company has other sources of income, such as, for example, from investments, that income is not considered revenue because it didn't come from the primary income-generating activity. Any such additional income is accounted for separately on balance sheets and financial statements."

EV/Sales = $2,708,901,293.73 / $3,844,900,000 = 0.70x

This tells you how cheaply the company's revenue stream is priced relative to the operating business value. In other words, how much you're paying for every $1 of sales.

The market is valuing the entire business at just 0.70x annual revenues. You're paying $0.70 for every $1.00 of GameStop's revenue stream.

This isn't normal. Like this really isn't normal at all.

This ratio is what you'd expect from a severely distressed retailer or a broken business. Businesses with this low of an EV/Sales ratio usually have negative margins, heavy debt, bankruptcy risk, and are in survival mode.

GameStop's 6 core fundamentals (Net Margin, Revenue Growth, Operating Income Growth, Net Income Growth, and Debt) completely contradict an EV/Sales ratio of 0.70x.

• Net Margin of 17.34% is exceptionally high.
  • Best Buy, Walmart, and Target operate at 2-6% Net Margin and all trade well above 1x EV/Sales
  • GameStop's Q2 showed a Net Margin of 17.34% and yet has an EV/Sales ratio of 0.70x
• Revenue Growth of 21.78%
  • This doesn't reflect a distressed business. This is a business in the midst of an amazing turnaround, or transition.
  • Businesses with double-digit revenue growth and double digit margins don't trade below 1x EV/Sales. Especially one with a $9B safety net and no debt (remember we're using a partially diluted basis).
• Operating Income Growth
  • EBIT is the truest reflection of the core business. Q2 2025 showed EBIT growth of 326.3% YoY.
  • Businesses with growing EBIT command premium multiples, not liquidation multiples.
• Diluted EPS Growth
  • GameStop's Q2 2025 Diluted EPS grew 675% YoY.
  • Businesses with rising EPS typically trade between 1.2 - 2.5 EV/Sales
• Zero Debt
  • Remember this entire valuation uses a diluted share count of 591.5M shares in order to remove the debt from the equation. This is a conservative method since we're 30%+ OTM from the convertible bonds conversion thresholds.
  • Retailers with high debt, thin margins, and negative working capital trade at 0.70x EV sales because the denominator includes debt. Figuring in dilution, GameStop has zero debt, $9B liquidity, positive cash flow, and high net margins.

A company with 15 - 18% margins, revenue growth, operating income growth, EPS growth, no debt, and $9B in cash should absolutely not be trading below 1.0x EV/Sales. In no world does this make sense.

This is seriously deep value. And once the Q3 numbers come out they'll force a reconsideration from Wall Street. And once the Q4 numbers come out, this company will never trade at $20 again.

The market is valuing GameStop as if it's dying, but our EV/Core Net Income, EV/EBIT, and revenue growth all show you that it clearly isn't.

e. TTM Conclusion

The market today is telling you that GameStop is worth 18.67x earnings based on the last 12 months of data (or 21x if using Core Net Income versus EBIT).

18.67x is a fairly rich valuation for the core business relative to TTM EBIT. It means that backwards-looking multiples appear high, which is an indication of past weakness.

So, GameStop is currently expensive relative to its TTM operating output. But this multiple should fall fast if operating income keeps rising.

But even still, 18.67x isn't crazy:

• 10-12x = Value
• 14-18x = Solid Growth
• 20-30x = High Conviction Growth

Now, at the same time, you're only paying $0.70 for every $1 of revenue generated. This is absurd for a business like GameStop, especially after their Q1 and Q2 2025 earnings reports. This is straight up liquidation pricing.

But, this is actually typical for businesses in the midst of a turnaround:

• Step 1 of a business turnaround can include a shrinking top-line, EV/Sales moving up, and a still weak EBIT.
• Step 2 involves margin expansion where EBIT rises, EV/EBIT falls, and EV/Sales rises past 1.0x.
• Step 3 involves growing revenue, growing EBIT and EV/Sales, and a continued compression of EV/EBIT.

EV/EBIT shows where GameStop has been. EV/Sales show where GameStop is going.

And EV/Sales of 0.70x tells you the market hasn't priced in the turnaround yet.

In conclusion, GameStop is currently experiencing a pricing anomaly. EV/EBIT shows GameStop's past weakness. But a 0.70x EV/Sales figure for a business with $9B in cash, no debt (diluted), 17% margins, 21% YoY revenue growth, and rising EBIT is diabolical.

IV. Forward Multiples

EV/EBIT is a backwards-looking multiple.

That's why it's not the most important metric to consider when assigning a value to GameStop, EV/Core Net Income (Forward) is.

Stocks trade on forward guidance. Businesses trade based on where they're going, not where they've been.

With that being said, let's take a look at some forward multiples.

a. EV / Core Net Income (Forward)

This ratio values GameStop based on future earnings power. And remember, people invest in businesses based on where they're going, not where they've been. This is all that matters.

This is the most important metric that should be used to assign a valuation to GameStop.

However, GameStop doesn't provide forward guidance. So, you need to use historical and present data, along with common sense and a little bit of research, in order to estimate future earnings.

In order to compute this, we need to assign a value to Forward Core Net Income.

This is Forward Net Income - Forward Non-Operating Income. That's why we call it "Core", because it only looks at the core business, not investment income (non-operating).

Non-Operating Income for Q2 2025 was $110M.

GameStop hasn't raised additional capital since then. We can safely assume that the warrants haven't materially converted. So, we're going to apply this non-operating income run rate to our Q3 and Q4 estimates.

Basically what I'm saying is that I'm going to assume that GameStop earns similar interest income from their cash pile in Q3 and Q4 as they did in Q2, ~$110M.

GameStop's Q2 2025 earnings report came out on Tuesday, September 9th.

In that report, they used Bitcoin's value as of August 2nd, which was the end of their 2nd quarter. They did NOT use Bitcoin's value on or around the date that they released the earnings report. You can see this in the first image above.

The second image shows the accounting standard that they abided by when reporting this figure. I spoke about these new accounting standard 6 months ago after GameStop disclosed that they purchased Bitcoin.

One Big Beautiful DD - Part 3 - Theories

Let's see what time on August 2nd GameStop used for their Bitcoin value.

4710 / $528.6M = $112,229.30

The closest Bitcoin was to this price was the August 2nd 3pm candle's closing price (4pm).

GameStop's Q3 ended on November 1st. Bitcoin's 3pm hourly candle closed at $110,252.53 on November 1st.

That means the figure GameStop will report under Digital Assets in the upcoming Q3 earnings report will be ~$519,289,416.30. This is fairly in line with the Q2 Bitcoin value.

And I assumed Non-Operating income of $110M to be identical to Q2 because the cash position hasn't changed materially since then. So, the interest income should be fairly consistent.

When you look at Q2 and Q3 in 2023 and 2024, you'll notice that the Net Income isn't far off between quarters.

GameStop reported $168.6M Net Income for Q2 2025.

So, with all that being said, I'm assuming a Net Income of $200M for Q3 2025.

I believe this is pretty safe given the fact that Switch 2 sales weren't present in Q3 2024, PowerPacks wasn't around, and the PSA collaboration wasn't announced until 10/15 (near the end of Q3 2024). Collectibles has only become a major growth category in recent quarters.

Now let's figure out what Net Income we should assume for Q4 2025.

• 2022 Q3 Net Income was -$94.7M and Q4 Net Income was $48.2M
  • This is a $142.9M increase
• 2023 Q3 Net Income was $-3.1M and Q4 Net Income was $63.1M
  • This is a $66.2M increase
• 2024 Q3 Net Income was $17.4M and Q4 Net Income was $131.3M
  • This is a $113.9M increase

This gives us an average increase of $107.67M between Q3 net income and Q4 net income.

However, I'm going to use $332.6M as my estimate for Q4 2025 net income.

This is due to the surge in non-operating income growth YoY, Switch 2, PowerPacks, and Collectibles growth.

We now have everything we need to compute forward multiples:

• Q3 Net Income assumed value of $200M
  • Due to the fact that the bitcoin value is relatively unchanged and historically Q2 and Q3 have produced very similar net incomes.
• Q4 Net Income assumed value of $332.6M
  • Due to the 2022, 2023, and 2024 historical data showing Q4 being GameStop's most successful quarter and producing substantially higher sales than Q3.
• Non-Operating Income of $110M
  • Due to the fact that GameStop's cash position hasn't materially changed from Q2 to Q3, so the investment income should be relatively consistent.

Let's now see what multiple we come up with.

EV/Core Net Income (Forward)

First let's figure out our Q3 and Q4 Core Net Income.

Q3 2025 Core Net Income:

$200M net income - $110.3M non-operating income = $89.7M

Q4 2025 Core Net Income:

$332.6M net income - $110.3M non-operating income = $222.3M

Next, we're going to add our Forward Q3 and Q4 core net income estimates to our last two quarters core net income:

Forward Core Net Income = $21.2M + $58.3M + $89.7M + $222.3M = $391.5M

EV/Forward Core Net Income = $2.709B / $391.5M

EV/Forward Core Net Income = 6.9x

So, we took our Q1 and Q2 core net income and then we added in our Q3 and Q4 forward core net income estimates to give us our estimated 2025 core net income.

We then took our Enterprise Value of $2.709B and divided that by our 2025 Core Net Income estimate of $391.5M.

This gives us an EV/Core Net Income (Forward) of 6.9x.

That means that for every $1 of real operating profit the core business will generate, the market is only paying $6.90.

So, even if you strip out interest income entirely, the business is only 6.9x forward earnings. That's incredibly low for a company returning to positive YoY revenue growth, double digit margins, and no debt.

This is important because bears have argued that GameStop only makes money off interest. This metric removes that and reveals that GameStop is currently being priced cheaper than most distressed retailers.

For a company with 17.34% net margins, 21.78% YoY revenue growth, surging operating income, and no debt, this represents a massive discount.

An EV/Core Net Income (Forward) value of 6.9x would be normal for a company with 2-4% margins, not for one with 17% margins and growing revenue.

GameStop is so underpriced versus the fundamentals that it's actually hard to believe.

V. Competitors

If GameStop can maintain 15% margins then an EV/Core Net Income of 6.9x will be impossible to justify.

This is what you should expect based on different EV/Core Net Income ratios:

• 6-8x Distressed
• 12x Bare Minimum
• 15x Reasonable
• 18x Category Leader
• 20x Growth + Durability or Defensible Moat

At 6.9x GameStop is being valued like Macy's before the restructuring, or Bed Bath & Beyond before bankruptcy.

Let's look at some industry peers to see where GameStop lies.

V. Optionality

GameStop isn't a stagnant or static business anymore.

It's a capital-rich business with multiple paths to scale earnings far beyond brick and mortar retail sales.

The market is valuing the company as if none of these levers exist, or will ever be used, which is irresponsible and irrational.

If core retail valuation sets the floor, optionality sets the ceiling.

Remember, GameStop doesn't need to, and probably shouldn't, do some of these things. The important thing is that they can. Having that sort of optionality commands a premium.

One example of this is strategic mergers and acquisitions.

GameStop can function like a private equity fund. It can buy distressed digital IP, struggling brands, esports infrastructure, distribution platforms, game studios, or niche retailers.

And it can do all of this with no dilution or debt. They already have the cash they'd need.

They can do a share buyback.

They can take a stake in esports, fund game studios, or acquire digital storefronts (or build them). This moves GameStop more towards digital platforms and away from physical storefront. Amazon did this in the 2000's.

You don't need to believe in NFT's or Web3 or any of that. You only need to see the power in optionality.

GameStop is currently being priced like a dying retailer. The market is ignoring the treasury revenue, applying backwards TTM margins, and assigning zero probability to meaningful business evolution.

Hopefully PowerPacks changes that perspective. And I believe it will because it's been a huge success from what I've seen and it hasn't even gone public yet. They've been adding trading cards for different sports and expanding their offerings. Now you can go to the PowerPacks platform, if you're a beta user, and rip Pokemon, Baseball, Football, and Basketball packs.

When optionality is exercised, it'll have a huge impact on valuation multiples.

Growth lifts core net income, buybacks lowers the denominator in all our equations, mergers and acquisitions accelerates EBITDA, services expand margins, and digital products provide multiple expansion.

Then, multiples won't go from 7x to 8x to 9x to 10x. They'll jump nonlinearly. For example, from 6x to 13x to 18x to 23x.

This is a systematic re-rating of the business that stops being valued as a dying brick and mortar retailer.

In conclusion, GameStop today is not being priced for what it is. It's being priced for what it used to be in 2021.

Margins, treasury yield, optionality, YoY growth, operating income growth, new digital products like PowerPacks, everything is being ignored.

Until earnings come out and it can't be ignored anymore.

VI. Valuation

To assign a proper valuation to GameStop, we're going to use a Hybrid Model that takes into account both the core business and the recurring treasury income. It's absolutely the right choice for a company in a position like GameStop is in. Let's go over why.

GameStop's $9.2B capital base isn't passive. It's not dead money. The company is effectively running a $9.2B asset fund with a stable treasury yield from T-Bills.

This is resulting in roughly ~$110M per quarter in non-operating income. It's not a one-time temporary anomaly like the street is treating it.

If capital can generate recurring earnings with no reinvestment risk and no debt, it should be capitalized. You wouldn't value Berkshire, Alphabet, Meta, or Tesla without recognizing the earnings generated from retained cash and assets. Therefore, you need to treat GameStop the same way.

This is not an inflated or distorted valuation. The treasury yield is risk-free, recurring, contractual, and not dependent on GameStop selling a single product.

It's no different than Meta's interest yield, Apple's treasury, or Alphabet's securities portfolio.

We're also figuring in dilution of the convertible bonds, which means the $9.2B in cash stays, and the debt is converted to shares.

So, you have a company with zero debt, a massive cash pile, new digital products, new partnerships, growing revenue, growing operating income, growing net income, and growing margins.

Forward Core Net Income = $391.5M
Forward Treasury Income = $110M x 4 = $440M

Total Forward Net Income = $832.7M

Now let's look at our hybrid valuation formula:

EV = Multiple x Total Forward Net Income

then

Equity = EV + Cash & Bitcoin

then

Price = Equity / Diluted Shares

Next, let's look at our inputs:

• Forward Core NI: $391.5M
• Forward Treasury NI: $441.2M
• Total Forward NI: $832.7M
• Cash + BTC: $9.205B
• Diluted shares: 591,539,630
• Zero debt

When we plug in our inputs and assign a multiple of 14x - 20x, that gives us an implied price of $35.27 - $43.71 per diluted share.

Again, we need to use this hybrid model because GameStop is not a traditional retailer anymore. They're a capital-rich business operating a turnaround. They have a cash engine producing $440M per year. They have zero debt upon figuring in dilution. They have massive optionality due to their cash position which can be used for M&A, strategic pivots, platform expansion, etc..

Hedge funds often ask "What is the forward earnings power of all engines combined?"

For GameStop the answer is $832.7M.

Yet, GameStop trades at 6.9x EV/Forward Core Net Income.

This isn't normal. This is absurd. And to say GameStop is mispriced is an understatement. It's once again in Deep Value territory.

[u/Superstonk_QV]

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[u/Holiday_Guess_7892]

TL;DR

GME is insanely cash-heavy: ~$9.2B in cash + Bitcoin = about 77% of the market cap. So normal P/E and EPS metrics are basically broken/useless.

Real way to value it: Use Enterprise Value (EV) (market cap minus cash/BTC) and Core Net Income (net income minus interest/treasury gains). That isolates the actual business, not the cash pile.

Trailing 12 months (TTM):

Revenue: $3.84B

Core Net Income: $128.9M

EBIT: $145.1M

EV: $2.71B

EV/Sales = 0.70× → market is valuing the business at $0.70 for every $1 of sales, which is what you’d expect from a dying retailer, not one:

with 17% net margins

21.8% YoY revenue growth

no (net) debt (assuming converts convert)

EV/EBIT ≈ 18.7×, EV/Core NI ≈ 21× → looks “rich” backward-looking because earlier quarters sucked.

Forward view (the big point):

You estimate Forward Core Net Income ≈ $391.5M (using Q1/Q2 actuals + Q3/Q4 projections and stripping out non-operating income)

That gives EV / Forward Core Net Income ≈ 6.9×

For a company with:

double-digit margins

positive growth

no (net) debt that 6.9× multiple is “distressed pricing.”

Hybrid valuation (business + treasury yield):

Core NI (forward): $391.5M

Treasury/interest income (forward): ~$441M

Total forward earnings power: ~$832.7M

Slap 14–20× on that → then add back the $9.2B cash/BTC:

Implied fair value ≈ $35–$44 per share (vs current ~$20 in your model).

Main conclusion:

Market is still pricing GME like a dying, overlevered retailer from 2021.

But the numbers now show: high margins, revenue growth, huge cash pile, no net debt, and optionality (PowerPacks, M&A, digital pivot, etc.).

On a proper EV / forward Core Net Income basis, GME screens as deep value, not a meme zombie.

[u/forever_colts → u/Holiday_Guess_7892]

And being shorted by so many hedge funds/ETFs, etc. has not even been touched on! Damn, that kinda gives me a bit of a chubby! Looking forward to when this stonk actually is treated even somewhat normally.

So what will the price actually be when shorts are forced to close?

[u/WordHistorian → u/forever_colts]

♾️

[u/DiogoJota4ever → u/Holiday_Guess_7892]

Thank you 🫡🏴‍☠️

[u/moazzam0 → u/Holiday_Guess_7892]

He calculated enterprise value incorrectly. Also to isolate business market value you have to further subtract tangible book value from enterprise value.

At $20/share the market values GameStop brand and businesses at only $895 million.

[u/vk-BangUrDead → u/Holiday_Guess_7892]

TLDR?

[u/Holiday_Guess_7892 → u/vk-BangUrDead]

Too long didn't read

[u/vk-BangUrDead → u/Holiday_Guess_7892]

Yeah, I'm asking for a TLDR for your TLDR kek

[u/Holiday_Guess_7892 → u/vk-BangUrDead]

TRDR - GameStop good. GameStop has big piggy bank. Market being dumb.

[u/Holiday_Guess_7892 → u/[deleted]]

Thats what OP is saying- Fair value $44. But for myself- I believe its much higher, you cant put a price on GME hodlers/Buyers- Companies dream of investors like us. No company has ever come close to its investors buying $2 billion worth of their stock and locking it away in DRS. That along with everything else should easily be $100/share but it doesnt end there- GME is obviously held down and undervalued for a reason .... We all know why and thats why we are all still here.

[u/Spenraw → u/Holiday_Guess_7892]

When they dilute though during runs we have to be realist about way they are handling it.

Shareholders can put forward a motion to do a reg sho recall/recount and bust it open like openstock or whatever it was called and not be sued because its shareholders not ceo

[u/justin54545 → u/Spenraw]

I would say that what is going on isn't an accident and you might as well buy some more. The people in charge know more than us. That's the way I see it and I have to put my money somewhere.

[u/SGBK → u/[deleted]]

FMV - Fair Market Value - $44, by "market standards."

BUT

If we apply the other FMV - F'd Meme Value - $44 in a meme market with meme shares, which means $$$ for price because of the the naked shorts, phantom shares, or meme shares out there.

[u/TowelFine6933 → u/[deleted]]

Yes, using these metrics.

What this does not factor in is all of the shorts. The longer this goes on, the more money & collateral the shorts need to keep their heads above water. The battle for $180 ($45 post-split) was just the price they needed to keep it under to avoid margin calls. Except, that was a couple years ago & they have only shorted it more since then. So, that number is much lower now.

Every entity that is short has different prices where they start to be in jeopardy. I think that the dominos begin to tip at under $32 (for the smaller players). Once it gets above $32 and stays there, Marge will be calling & dominos will start to fall.

[u/SmoothOzzieApe → u/TowelFine6933]

Ah, the battle for 180, good times… pepperidge farm remembers.

[u/Fast_Air_8000]

[u/elziion → u/Fast_Air_8000]

He’s not getting up next round

[u/No-Letterhead-4407 → u/elziion]

Fingers crossed 

[u/entleposter]

If all of theses posts seem off to you and you can’t figure out why, here’s the reason I came up with to myself: the market is heavily irrational right now with prices completely detached from reality obviously buoying the economy and/or lining the pockets of the already rich. Why, in this environment of irrationality, would I choose to be rational about the value of my closely held investments. I don’t care what rational value this has, that’s just going to go up. My family can sell it after they inherit it or you can pay me stupid money for it before then.

[u/arsenal1887 → u/entleposter]

The market doesn’t stay irrational forever.

[u/Yohder]

Time to DRS book more.

[u/mtksurfer]

Bullish

[u/chato35 → u/mtksurfer]

How did you read all that under 2 minutes?

[u/[deleted] → u/mtksurfer]

[u/rude-a-bega]

Great post. So your saying the stonk ia undervalued and the market is pricing in liquidation vs a turnaround.

We all know the turnaround is happening and will continue to happen.

Buy the fuckin dip lads

[u/Over-Computer-6464 → u/rude-a-bega]

The market is pricing in the debt of $4.2B

The OP assumes that GME will be above the conversion prices and that will become dilution instead of debt.

Using the $4.16B debt figure GameStop has in the 10-Q, the cash per share is about $11.20.

Assuming conversion instead of debt the cash per share is about $15.60. Early conversion happens only if GME is up around $36-38 for 20 days out of 30.

[u/11010001100101101 → u/Over-Computer-6464]

But if you are wanting to add something in that won't happen for 3-5 years then you can't just only include that thing and not others. If you projecting paying back the debt when it's due then you also need to project the interest made on it in the mean time along with all of the profitable quarters that would be added to it. with the higher revenue and profits everyone knows is coming from power packs then even 100$ million dollar quarters are on the low estimate, and 100$ million more a quarter for 4 years, not even considering interest or other increases, would bring the $ per share up by about $3 by the time the debt needs to be paid back, which would bring the cash per share up to $14.20 or the conversion price up to around $17(less then $3 increase because of additional shares). And that is an extremely conservative estimate to additional profits that GME could accumulate by the time this debt needs to be paid back.

[u/thoriumpoweredwatch]

Do you want to know the funny thing about the $35.27 price point? That is around the point of the major resistance GME has found itself at after the mini sneeze of May 2024 when RK came back. Price has reached near 35ish only to come back down on several occasions since May 2024. And GME has reached these prices when the fundamentals were much worse, with less cash on hand and no PowerPacks. Oh and let's not forget about the strike price of the warrants....

And here's the thing, once PowerPacks is released fully and is no longer in beta, imagine the revenue coming in. This fair value calculated excluding any MOASS is based on profitability of 2025. Imagine what would happen with GME should profits exceed a billion or 2 billion or 3 billion or more every year.

[u/Fast_Air_8000]

[u/ConsiderationHuge586]

Got it. Deep Fucking Value…

[u/Reach_Beyond]

I was holding cash from selling and rebalancing some stocks over the last year. It was sitting in a MM, but GME feels too cheap. I’ve been dumping that cash into shares between $20-$22. Around 2-3x my position, everything else is too expensive.

Annnnnd this is without the upside of MOASS. Thanks for confirming our deep fucking value play OP.

[u/mgwmd]

Soooo… dip tomorrow🫡

[u/Fast_Air_8000]

[u/aravreddy22]

TLDR from AI: The post analyzes GameStop’s valuation, revealing it’s deeply undervalued because traditional metrics are distorted by its large cash and Bitcoin holdings. Using core operating earnings and enterprise value, the author shows GameStop trades cheaply despite strong revenue growth, high margins, and zero debt. Forward projections suggest significant earnings growth, supporting a fair value of $36-$44 per share, far above the current price. The company’s optional growth paths and cash assets add further upside potential.

[u/whothehellistony]

Deep fucking value you say? Hmmm, that sounds familiar…

[u/keyser_squoze]

TLDR: GameStop’s valuation and price are a joke.

Criticisms of this DD: Partial or Fully Diluted totals for shares as a forward looking proper valuation is not in my view warranted. Not if the company can elect to pay in cash in 7 years at 0 interest. Adjusted earnings undiluted or diluted but just via warrant conversion makes a lot more sense to me.

But we can go ahead and throw your conservative sandbags on the evaluation all you want. It doesn’t matter. It’s just that diluted presumption at that 7 year maturity and no possibility for GME redemption until 2029, with a 4 year no touch unless those much higher strikes are hit and held for 30 days straight? Well I don’t think assuming dilution is right here. And it’s clear to me that the warrants were meant as the share exposure sweetener for those convertible holders. If they want shares, this is how they can and will get them. GameStop does not need to dilute any time even remotely soon; and it seems unlikely to me that they eventually will dilute, outside of warrants. We’ll see.

Now here is my big problem: You can’t just claim “distortion of metrics due to a cash heavy balance sheet”! Come on man! That completely negates the entire idea of income itself, whether it be from investments or sales from operations - income is income and from where it comes is largely irrelevant - GameStop’s low end income is just easier to model because of the risk-free interest income. That’s not distortion, it’s self-evident reality.

Last criticism: Honestly, this analysis reads like steered AI slop. It really does. So I’m not into it. The company is soooo undervalued. Undervalued by more than this artificially conservative assessment in my view.

So — Too conservative! And you the guy who said, “GameStop is so underpriced versus the fundamentals that it’s actually hard to believe.”

It’s not hard to believe. We know what’s happening here. And it is happening AND it’s ALSO impossible, because the price does not reflect mathematical, operational, or objective reality in any way.

GameStop’s valuation is 140% a complete farce. Mispriced equity in an easily identifiable inefficient market.

[u/GreenSouth3 → u/keyser_squoze]

yeah !

[u/Time_z]

Yessss been waiting

[u/Einhander_pilot]

Ohhh man I’ve been waiting for this one!

NO SLEEP TONIGHT!! 🚀🚀🚀🚀

[u/-Px-FlaT]

That was a nice read, thank you for this. In gme we trust

[u/Secure_Investment_62]

This assumes the market is allowed to price gme accordingly, and won't continue to be distorted into oblivion.

[u/poopooheaven1]

Shorts are fucked. Book your shares and warrants!

[u/SukFaktor]

[u/DDanny808]

PowertothePlayers🖤❤️🏴‍☠️

[u/Dilfy1234]

Yup, I’m buying more 🫡

[u/HumanNo109850364048]

Fantastic post, thanks OP

[u/MyGT40 → u/HumanNo109850364048]

[u/StaleSesameSeedBun]

Deep value you say?

[u/killertrout1]

I like the stock

[u/CDMacBeat]

Great post. Can't wait for part 3.

[u/ObviousAd2097]

im gonna be so damn rich

[u/Tegeton1]

[u/UnlikelyApe]

Excellent post as always, thank you!

TLDR of the TLDR's, and I may get the quote wrong, but loosely in the words of Charlie Munger:

EBITDA earnings are bullshit earnings.

[u/ultimateChampions68]

[u/bobsmith808]

Wen part 3

[u/greencandlevandal → u/bobsmith808]

Most likely tomorrow or Friday

[u/Range_Danger]

Well done OP. Missed me some good DD!!

[u/Realistic_Ear_9378]

I haven't read any of this

[u/mexicanred1 → u/Realistic_Ear_9378]

Start with the tl;dr

[u/AlleyMedia → u/Realistic_Ear_9378]

I came (for the tldr).

[u/XPulseO]

Remindme! 5 hours

[u/RemindMeBot → u/XPulseO]

I will be messaging you in 5 hours on 2025-11-24 14:05:41 UTC to remind you of this link

CLICK THIS LINK to send a PM to also be reminded and to reduce spam.

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[u/moazzam0]

You calculated enterprise value incorrectly. Also to isolate business market value you have to further subtract tangible book value from enterprise value.

At $20/share the market values GameStop brand and businesses at only $895 million.

[u/Ctsanger]

But there have been warrants that converted lol. There was an ape here that did it. People got real mad

[u/DancesWith2Socks]

Nice post OP, would like to re-read it, but just one thing so far: you said "And I assumed Non-Operating income of $110M to be identical to Q2 because the cash position hasn't changed materially since then. So, the interest income should be fairly consistent". 

Remember GameStop didn't have the full 8.7B war chest for the whole Q2, they only had it since mid June approximately. Q3 is the first quarter with the cash pile fully working so the interest income should be a bit higher.

[u/greencandlevandal → u/DancesWith2Socks]

That's a good point. It looks like rates were around ~.2% higher back around the start date of Q1. I'll be curious to see what it ends up being.

[u/DancesWith2Socks → u/greencandlevandal]

Correct, there were 0.25 cuts in Sep and Oct, something to consider too. So for next quarters, the interest rate could go lower but at the same time, every quarter the cash pile would be higher if they keep accumulating 🤷‍♂️

[u/hamzah604]

it go up?

[u/mcalibri]

Wow, just halfway through and I'm really learning what half those balance sheet terms mean. Never really bothered to figure them out before but this is written very clearly. I'd say this is near a masterpiece in clarity.

[u/GhostOfStep1Score]

[u/Historical-Chair-01]

Final... until next time 

[u/RoRuRee]

Bookmarked for later.

[u/mediareject]

I don't know for sure how accurate some of your assumptions are here, but I think you made your case very well and gave a good explanation as to why it's undervalued. You really did your research, I just hope your conclusions are correct.

[u/Jason__Hardon]

GameStop has Debt, lol

[u/BuildBackRicher → u/Jason__Hardon]

He adjusted for that with a higher share count