GameStop (GME) has been one of the more popular stocks on Wall Street for the last several years, going back to 2021 when a short squeeze and the r/WallStreetBets army on Reddit (RDDT) made meme stocks something to watch.
Ryan Cohen, the co-founder of Chewy (CHWY), took over as CEO in an attempt to reinvent the company. Cohen slashed spending, closed hundreds of stores, invested in Bitcoin (BTCUSD), and eliminated long-term debt to return the company to profitability.
Now, Cohen appears to be eyeing the next step. The CEO recently told CNBC that the company is working to complete a “very, very, very big” purchase of a larger consumer company. “It’s transformational,” he said. “Not just for GameStop, but ultimately, within the capital markets … this is something that really has never been done before within the history of the capital markets.”
While Cohen didn’t name the companies that GameStop is targeting, he said it is seeking undervalued publicly traded consumer companies with scalable growth prospects. He said the deal, if successful, could make GameStop worth several hundred billion dollars — a huge statement considering GME stock currently has a market capitalization of just $10.7 billion.
“If it works, it’s genius. If it doesn’t work, then, you know, it will be totally, totally foolish,” Cohen said.
Wow. Talk about rolling the dice. But Cohen has a solid track record, so let’s take a closer look at GameStop today.
About GameStop Stock
Headquartered in Grapevine, Texas, GameStop is a specialty retail company that sells new and pre-owned video game consoles, games, and accessories. In the company’s heyday, it was a popular place for people to pick up new titles or sell back unwanted video games. But after Sony and Microsoft (MSFT) changed the business model for the PlayStation and Xbox by making games downloadable, GameStop sales slumped.
Under Cohen’s leadership, GameStop has evolved as a seller of apparel, collectables, and items such as Pokémon cards. It’s also making a significant push into e-commerce and an omnichannel strategy, allowing customers to look at inventory at stores online and to make digital purchases to pick up or have delivered to their homes.
Shares are down 11% in the last year, by far underperforming the S&P 500 Index ($SPX), which is up 15% in the same period.
The stock is currently trading at a price-to-earnings (P/E) ratio of 29x, with a forward P/E of 24x. That’s not bad at all, especially when you consider that the stock’s trailing P/E was more than 90x a year ago. And the fact that the forward P/E is only 24x shows that investors aren’t pricing in outsized expectations for GameStop moving forward.
GameStop Has Mixed Earnings Results
While GameStop missed revenue expectations in the third quarter, the company reported beating analysts’ bottom-line expectations. Revenue was $821 million versus $987.3 million that analysts expected, but the company’s earnings per share (EPS) of $0.24 was better than expectations of $0.20 per share.
Notably, revenue also dropped from a year ago — GameStop had $860.3 million in sales in Q3 2024 before recording just $821 million in the most recent quarter. However, net income was drastically improved, topping $77.1 million versus $17.4 million ago.
And the company is in a sound financial position, with cash and cash equivalents of $8.8 billion, versus $4.6 billion last year.
GameStop did not issue guidance for the fourth quarter, but the company is obviously looking further down the line with its acquisition plans. And it should be noted that Cohen has a huge incentive to make such a deal happen. The company disclosed in January that its CEO will be eligible for a massive payday if he can push GameStop to a market cap of $100 billion and $10 billion in cumulative earnings before interest, taxes, depreciation, and amortization.
If he hits that target, Cohen gets stock options for 171,537,327 shares of GameStop stock at $20.66 per share. Presumably, GameStop stock would be worth much more than $20.66 if it hits the market cap and earnings goals, making Cohen’s deal incredibly lucrative.
What Do Analysts Expect for GME Stock?
Unsurprisingly, analysts are taking a pass on GameStop — not saying to sell it but that they aren’t interested at all in covering it. No analysts surveyed by Barchart have been covering GameStop in the last three months.
But that’s really not a surprise. GameStop for the last several years has been purely a meme stock, and while Cohen is trying to build something that’s truly investable, it’s not there yet.
I’ve never been a fan of GameStop because I think that meme-stock trading is far too much like gambling than investing. But, if GameStop can figure out a way to merge with another company and continue to evolve its business plan, I expect analysts to take another look.
In the meantime, I suggest keeping your distance from GameStop as an investment.
On the date of publication, Patrick Sanders did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
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