Can GameStop Stock Rise From the Ashes?

Under the stewardship of CEO Ryan Cohen, GameStop (NYSE: GME) is looking to rise from the ashes. Cohen himself recently said the company was a "piece of crap" when he took over in the fall of 2023.

At the time, the company was losing money and facing structural challenges. At its core, GameStop is still a global retailer of new and pre-owned video games and video game hardware, operating thousands of stores across North America, Europe, and Australia. The video game industry, meanwhile, has seen a shift from physical games to digital downloads and subscription models. There also hasn't been a major new gaming console release to drum up consumer demand since 2020.

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Turning the company around

The bright spot for GameStop has been its foray into the collectibles market, which it started to pursue around 2016. While the collectibles business has had its ups and downs over the years, the company seems to have found its niche with the buying and selling of graded trading cards for popular games such as Pokémon, Yu-Gi-Oh!, and Magic: The Gathering. Last fall, it also became an authorized dealer for grading company PSA, allowing collectors to drop off cards at GameStop locations to be sent in for grading.

While GameStop continued to see large declines in its video game and hardware sales last quarter, collectibles was a bright spot. Overall sales sank 17% in its fiscal 2025 Q1 to $732.4 million, but collectible sales soared 55% to $211.5 million.

Upon taking over GameStop, Cohen called for "extreme frugality," saying every expense must be examined and all waste eliminated. That frugality was also on display last quarter as the company was able to flip its year-ago loss of $32.3 million into a $44.8 million profit, despite the overall decline in sales.

GameStop also generated $189.6 million in free cash flow in the quarter and ended the period with $6.4 billion in cash against nearly $1.5 billion in debt in the form of a 0% convertible note. And here is where the story gets really interesting.

During its meme stock days, GameStop was able to take advantage of its high stock price and issue equity at attractive prices to raise a lot of cash. Though its share price has come down from the levels seen in 2021, the stock has remained elevated enough that Cohen decided to issue additional equity last year through at-the-market (ATM) offerings, contributing to its current cash holdings.

That much cash gives Cohen, who also owns just over 8% of the company through his RC Ventures investment vehicle, the means to transform GameStop. While Cohen has helped stabilize the GameStop business and even made it profitable, that is not where its potential lies. At the end of the day, there are just too many structural headwinds working against it for it to become a strong and growing retail business.

With over $6 billion in cash, though, Cohen has options. His first step was using some of the company's cash hoard to buy 4,710 Bitcoin between May 3, 2025 and June 10, 2025. At current prices, that would be worth around $518 million. Cohen said the company added Bitcoin to "hedge against global currency devaluation and systemic risk."

However, just buying Bitcoin is not going to transform the company. If that is the company's strategy, it would just be better for investors to buy Bitcoin themselves. That said, Cohen hasn't indicated that this is his long-term plan, and Bitcoin could just be a place to store some of GameStop's cash for now.

A potential move for Cohen would be to either acquire a fast-growing business or turn GameStop into a holding company like Berkshire Hathaway. People often forget that Berkshire was a struggling textile company that Warren Buffett bought and eventually had to shut down before it became the massive conglomerate it is today. Cohen has proven he can successfully run and turn around a struggling business, but now, he needs to expand beyond GameStop's legacy model.

Image source: Getty Images.

Is GameStop stock a buy?

With an enterprise value of over $8.5 billion, GameStop's current value is worth way more than the intrinsic value of its retail business. Note that enterprise value takes into consideration its sizable cash position. That's why one Wall Street analyst recently said the company is relying on the "greater fools" theory, meaning that the only way the stock price would go up from here is if someone else was dumb enough to buy it at a higher price.

That's a bit harsh, and given GameStop's cash hoard, Cohen does have the resources necessary to transform the company. However, I would agree that investors shouldn't be buying the stock at these overvalued levels based only on the hope that he comes up with a viable turnaround plan.

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Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway. The Motley Fool has a disclosure policy.