GameStop Image by rblfmr via Shutterstock

GameStop (GME) announced this week that it purchased 4,710 Bitcoin, now worth $492 million. With the recent rise in GameStop, allowing the conversion of its convertibles into equity, the 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 may look attractive here for value investors.

GameStop closed at $29.80 on Friday, May 30, up +7% in the last month after peaking at $35.01 on May 27. I recently discussed the stock's value in a previous article.

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 stock value.

(Click on image to enlarge)

Image Source: Barchart - GameStop over the last six months - as of May 30, 2025

I argued in my previous article that, based on its free cash flow (FCF), GameStop stock could be worth $56.00 per share. I used an FCF margin and FCF yield method to value the stock. 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 lower than the recent price (but higher earlier this week). As a result, its convertible debt may have started to shrink, and may begin to do so shortly as GameStop rises.

So, with the recent Bitcoin announcement, there is another way to value GameStop 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 the stock rises well over $29.85. That has already happened this week, and I argued in my recent article that GameStop could rise significantly more based on its free cash flow.

So, let's say that GameStop will rise to $35.00 per share over the next quarter after the company announces its results. That will increase the number of shares by 53.142 million to about 500.2 million (i.e., $1.48 billion / $29.85 = 49.58 million shs +447.1 million = 496.68). This assumes that over the next quarter, all noteholders will convert.

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

• $4.758 billion + $1.48 billion = $6,238 billion NLA
• $6,238 billion / 496.68 million shs = $12.56 per share NLA

Bitcoin

We now know that GameStop 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:

• $6,238 million - $424.08 million = $5,813.08 million
• $5.813 billion / 496.68 million shs = $11.70 p/Sh NLA

But, since BTC is now worth around $104,541, the value is worth:

• 4,710 x $104,541 = $492.388 million Bitcoin value, or almost $1.00 / sh
• $492.4 / 496.68 million shs = $0.991 p/sh

In other words, its NLA is worth $11.70 p/sh and 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 $10 billion: 

• 4 x $3.345 billion = $13.38 billion

This also works out to a FCF multiple of 30.1x (i.e., a FCF yield of 3.25%), using a 13% FCF margin - i.e., $434.5 million FCF (see my previous article). 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:

• $13,380 million / 496.68 million 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 GameStop investors and existing shareholders.

Keep in mind, this assumes that GameStop stock rises to the point where all converts are converted into common stock (i.e., $29.85 or higher), BTC stays flat at $104,000, 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 three weeks, as the midpoint premium is $1.32 (i.e., $1.32 / $28.00 = 0.471). This strike price is 6.0% below Friday's price (i.e., out-of-the-money):  $28.00 / $29.80-1 = -06.04).

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Image Source: Barchart - GameStop puts expiring June 20 - as of May 30, 2025

Moreover, more risk-averse investors can “Sell to Open” 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 (who don't want to miss any upside) to short a combination of these two puts. 

Others can short these puts and also buy longer-dated calls with the proceeds. That way they may not miss any upside, in case GameStop rises from here. Keep in mind that the risks associated with shorting puts and buying calls are high. Investors can learn more to understand these risks.

The bottom line is that GameStop 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.

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