While GME is up nearly $4, or 15%, to $30.90 since the company reported its fiscal third-quarter results nearly two weeks ago, the key takeaway is that the fundamental story hasn’t changed . Revenue continues to decline and money is bleeding. However, the loss is smaller and the company has a very solid balance sheet, having sold nearly $3.5 billion worth of shares this year. Note that the company does not hold a conference call when it announces its quarterly financial results.

GameStop’s fiscal year end is late January or early February. Between fiscal years 2017 and 2019, revenue was between $7.97 billion and $8.55 billion. However, revenue in the 2020 financial year (almost calendar year 2019) had already fallen by 22% before the Covid outbreak. With the exception of fiscal 2022, revenue has declined or is expected to decline through fiscal 2026 (January 2025). A 51% decline in sales is forecast between fiscal year 2019 and fiscal year 2025.

• Fiscal 2017: $8.0 billion
• Fiscal 2018: $8.5 billion, up 7%
• Fiscal 2019: $8.3 billion, down 3%
• Fiscal 2020: $6.5 billion, down 22% (pre-Covid)
• Fiscal 2021: $5.1 billion, down 21%
• Fiscal 2022: $6.0 billion, up 18%
• Fiscal 2023: $5.9 billion, down 1%
• Fiscal 2024: $5.3 billion, down 11%
• Fiscal 2025: $4.0 billion estimated, down 24%
• Fiscal 2026: estimated $3.8 billion, down 7%

While GameStop’s annual operating cash flows do not accurately reflect the company’s overall sales changes, the decline in sales has caused its operating and free cash flow to change from positive to negative.

• Fiscal 2017: Positive $537 million
• Fiscal 2018: Positive $435 million
• Fiscal 2019: Positive $325 million
• Fiscal 2020: Negative $415 million
• Fiscal 2021: Positive $124 million
• Fiscal 2022: Negative $434 million
• Fiscal 2023: Positive $108 million
• Fiscal year 2024: minus $204 million
• 3 quarters. Fiscal year 2024: Negative
• 3 quarters. Fiscal year 2025: minus $16.6 million

Improved operating cash flow in the first nine months of the fiscal year (minus $16.6 million) compared to the nine months of the last fiscal year (minus $192.7 million) was driven by:

• $0 net loss versus $(56) million
• Reducing inventory by $159 million
• Increased trade payables by $73 million

Lower inventory levels and higher trade payables can only last so long.

Free cash flow is operating cash flow minus capital expenditures.

• Fiscal 2017: Positive $394 million
• Fiscal 2018: Positive $322 million
• Fiscal 2019: Positive $231 million
• Fiscal 2020: Negative $493 million
• Fiscal 2021: Positive $64 million
• Fiscal 2022: Negative $496 million
• Fiscal 2023: Positive $52 million
• Fiscal year 2024: minus $239 million
• 3 quarters. Fiscal 2025: Negative $29 million

The balance sheet was significantly strengthened

In 2024, the company sold shares three times. From May to September, the company raised about $3.45 billion by selling 140 million shares at an average price of $24.64.

The company increased its cash and marketable securities to more than $4.6 billion from $1.2 billion at the end of January. The company has essentially no debt at $20.5 million and its net cash-to-market cap is 34%. Although the company is losing money on a cash flow basis, there is more than enough cash on hand to cover any losses.

The operating and net income was created by interest income

In the fiscal third quarter, GameStop generated pretax profit of $20.8 million and net income of $17.4 million, resulting in EPS of $0.04, while reporting a loss of (0, 03) US dollar was expected.

However, as the company earned approximately $3.45 billion from the sale of shares, interest income for the quarter was $54.2 million compared to $12.9 million a year earlier, an increase of 41, equals 3 million US dollars. Operating loss was $33.4 million, compared to a loss of $14.7 million a year ago.

Without the additional interest income, the company’s EPS result would have been a loss of $(0.10) compared to a loss of one cent a year ago.

If interest rates fall somewhat, the benefit of the additional cash is likely to diminish.

The rating is a bit expensive

GameStop’s valuation is on the expensive side compared to the last three years. With a market cap of $13.5 billion and revenue of just over $4 billion in fiscal year 2025, the market cap to revenue ratio is 3.4x.

However, if you subtract the $4.6 billion, the enterprise value to sales ratio is 2.2x, but with 34% of its market cap in net cash. Over the last three years, the market capitalization-to-sales ratio at the end of the fiscal year has ranged between 0.8x and 1.3x

So stocks are expensive, but not extremely expensive.

The graphic shows a slightly overbought condition

The Relative Strength Index or RSI at 60.25 is on the overbought side.