GME - Gamestop: Intrinsic Value Trumped By Meme Rallies

2024-05-30 19:09:44 ET

Summary

• I estimate GameStop's intrinsic value to be $5.43/share, but the possibility of a future meme rally increases my estimate of GameStop's value to $17.98/share.
• Investors should estimate the probability of another meme rally in the future and the peak share price during a future meme rally.
• I believe there's a 35% chance of a future meme rally, and I recommend selling out at $40/share if that's the case.
• GameStop's fundamentals remain weak, but they matter little to the current meme rally thesis.

Introduction

I valued GameStop ( GME ) last year at $5-$8/share (it was trading at ~$20/share at the time). My thesis that consensus revenue growth was too high played out, considering that revenue declined 11% YoY (whereas consensus revenue growth was roughly flat at the time). GameStop's shares bottomed at ~$10/share in April 2024.

However, I overestimated the importance of GameStop's intrinsic value in my initial analysis. Almost all of Gamestop's value as an investment comes from the possibility of a future meme rally. GameStop's shares peaked at $64.83/share during the recent meme rally and are currently trading for ~$20/share, so my bearish view of GameStop last year was incorrect. In my updated expected share price calculation for GameStop, the meme rally scenario adds $14/share to the expected share price, whereas the other scenarios add only $3.98/share....

For further details see: