How much is Game Stop Corp. actually worth? A simple guide for bagholders

CURRENT BUSINESS UNIT: RETAIL VIDEO GAME STORE

Current assets: $2.9B (of which $1.14B in inventory)

Net real estate: $795M

Total liabilities: $2B

Assuming a discount of 30% for real estate and 40% for inventory the net assets of Game Stop are in the ballpark of $1Bn

Game Stop's cashflow. With a neutral assumption on growth:

Cash from operations +$200M

Cash from investments -$50M

Cash from financing -$50M

Net change in cash +$100M

DCF value of $615M discounting cashflows at 10% for 10 years, assuming retail operation will stop after 10 years. Value of retail business: $615M

FUTURE BUSINESS UNIT

Can GameStop reinvent its business model? Nobody knows. Assuming Cohen can turn around the company with a probability, with a cashflow approx. similar to Chewy (+$300M) in 5 years, accounting for invetsments and incorporating it into our DCF we could get an extra value of roughly $8Bn.

CONCLUSIONS:

If you don't believe in the turnaround $GME is worth $1.6Bn, approx. 20$/share
If you believe in the UNLIKELY turnaround $GME COULD be worth $9.6Bn, approx. 124$/share.

There is no upside in holding $GME since the price reflects even the most optimistic between the possible outcomes. The rating at the current price of $108 should be either a hold or a sell

Trade idea: buy $GME only if it falls substantially below $15/share, below the level of current net assets. Might be worth selling cash secured puts at that strike if IV gets high enough due to a collapse in the share price driven by catalysts like: retail fear, technicals like broken support levels, options market makers abandonding the stock due to call option low demand or a reckoning about the plans for the future business unit. Price target is probably 40$/share imo.