GameStop (GME) announced this week that it purchased 4,710 Bitcoin, now worth $492 million. With the recent rise in GME stock, allowing the conversion of its convertibles into equity, GME stock looks undervalued at about $40 per share, using a Sum-of-the-Parts (SOTP) valuation method. Moreover, shorting out-of-the-money (OTM) puts look attractive here for value investors.

GME closed at $29.80 on Friday, May 30, up +7% in the last month after peaking at $35.01 on May 27. I discussed GME's value in a recent Barchart article, “GameStop Stock Could Surge From Here - All Eyes are On Its Results.”

GameStop also announced it will release its Q1 results (for the quarter ending April 1) after the market closes on Tuesday, June 10. 2025. This will allow us to update GameStop's value.

I argued in the article that, based on its free cash flow (FCF), GME stock could be worth $56.00 per share. I used an FCF margin and FCF yield method to value GME. That valuation implies +88% upside from Friday's close.

The $1.48 billion in convertibles it issued on March 27 can be converted into equity at $29.85. That is slightly above Friday's closing price (which was higher earlier this week). As a result, GameStop's convertible debt may begin to shrink, and will continue as GME stock rises.

So, with the recent Bitcoin announcement, there is another way to value GME stock - Sum-of-the-Parts (SOTP). 

Sum of the Parts (SOTP)

We now know what GameStop is doing with its cash and debt raises - buying large amounts of Bitcoin with them. 

So, we can add up GameStop's four major parts - its cash, Bitcoin, stores, and debt - using estimates and projections for each.

Net Liquid Assets. For example, at its fiscal year-end 2024, GameStop had $4.7749 billion in cash on its balance sheet as of Feb. 1, 2025. 

After deducting $16.9 million in long-term debt, that works out to Net Liquid Assets (NLA) of $4.758 billion, or $10.64 per share:

   $4.758 billion NLA / 447.1 million shares = $10.64 p/sh Net Liquid Assets

Debt. Since then, on March 27, GameStop raised up to $1.48 billion in convertible notes. The converts were quite unique. The interest rate was zero. Very few companies can get away with this. 

Moreover, the convertible feature allows investors to turn their notes into common equity at $29.85 per share. That was 35% higher than the closing price on March 27 of $22.09.

Given that note holders make no income, their only potential gain will be if GME stock rises well over $29.85. That has already happened this week, and I argued in my recent May 26 Barchart article that GME could rise significantly more based on its free cash flow.

So, let's say that GME will rise to $35.00 per share over the next quarter after GameStop announces its results. That will increase the number of shares by about 50 million to about 497 million (i.e., $1.48b/$29.85 = 49.58m shs +447.1m  outstanding = 496.68m). (This assumes that over the next quarter, all noteholders will convert.)

As a result, the NLA per share will be higher:

  $4.758b + $1.48b = $6,238 billion NLA

  $6,238b / 496.68m shs = $12.56 per share NLA

Bitcoin. We now know that GME has 4,710 Bitcoin. But we don't know their cost (until results are released on June 10). So, let's assume that GameStop paid about $90,000 BTC. So that means it spent $424.08 million (i.e., $90,000 x 4,710).

As a result, the NLA will now be:

   $6,238m - $424.08m = $5,813.08m

   $5.813b / 496.68m shs = $11.70 p/sh NLA

But, since BTC is now worth $104,541, its value is worth 

   4,710 x $104,541 = $492.388 m Bitcoin value, or almost $1.00 / sh

   $492.4 / 496.68m shs = $0.991 p/sh

In other words, its NLA is worth $11.70 p/sh and the BTC is worth $0.99 per share. The total is $12.69 p/sh.

Stores. Analysts project sales this year of $3.56 billion and $3.13 billion next fiscal year. So, on average, they will generate $3.345 billion. At three times sales, the stores are worth over $13 billion: 

   4 x $3.345b = $13.38 billion

This also works out to a FCF multiple of 30.8x (i.e., a FCF yield of 3.25%). That is based on my estimate of GameStop's FCF,  i.e., $434.5 million, (see my prior Barchart article forecasting a 13% FCF margin):

   $13.38b / $434.5m FCF = 30.8

However, to be fair, that includes interest on the cash (but let's keep it in for the time being).

As a result, the stores are worth almost $27 per share:

  $13,380m / 496.68m shs = $26.94 p/sh

Sum of the Parts:

   NLA …. $11.70 p/sh

   BTC …….$0.99

   Stores …$26.94

Total….   $39.63 p /sh

This implies at least a +33% increase in value over Friday's $29.80 for GME investors and existing shareholders.

Keep in mind, this assumes that GME stock rises to the point where all converts are converted into common stock (i.e., $29.85 or higher), BTC stays flat at $104K, and the company generates just 13% FCF margins, including cash interest.

If the upcoming results show that these assumptions are too conservative, all bets are off. After all, the company could continue to issue more converts and buy more BTC (given how much cash it still has).

One way to play this is to sell short out-of-the-money (OTM) puts. That way, an investor can set a lower buy-in target price and get paid.

Shorting OTM Puts

For example, an investor who sells short the $28.00 puts expiring on June 20 can make a 4.71% yield over the next 3 weeks, as the midpoint premium is $1.32 (i.e., $1.32/$28.00=0.0471). This strike price is 6.0% below Friday's price (i.e., out-of-the-money OTM):  $28.00/$29.80-1 = -0.0604).

Moreover, more risk-averse investors can “Sell to Open” (i.e., sell short) out-of-the-money (OTM) puts that have a $27.00 strike price, 9.4% lower than the trading price, and receive 92 cents, a yield of 3.407% (i.e., $0.92/$27.00). This has a lower chance of requiring the investor to buy shares at $27.00 as the delta ratio is only 25.8%.

In any case, with both of these strike prices, the investor has a lower breakeven, given how high these premiums are. It might make sense for existing shareholders to sell short a combination of these two puts. 

Others (who don't want to miss out on GME's upside) can both short these OTM puts and also buy longer-dated in-the-money (ITM) calls with the proceeds. That way they may not miss any upside, in case GME rises from here.

Keep in mind that the risks associated with shorting puts and buying calls are high. Barchart has Learn tabs that allow investors to understand these risks.

The bottom line is that GME stock looks cheap here, at $40 p/sh, based on a Sum-of-the-Parts (SOTP) valuation method. All eyes will be on its upcoming June 10 results to see how undervalued it may be.

On the date of publication, Mark R. Hake, CFA 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.