GameStop (GME) — Valuation: DCF, SOTP & Peer Comps

Institutional equity research · July 2, 2026 · Price basis $22.49 (July 1 close area) · psind707

1. Snapshot (verified: Q1 FY26 10-Q and 8-K, filed June 2, 2026)

Item	Value
Price / basic shares / mcap	$22.49 / 448.69M / about $10.1B
Q1 FY26 net sales	$835.3M, +14.0% YoY
Q1 operating income	$143.3M (record Q1; prior year −$10.8M)
Q1 gross margin	40.7% vs 34.5%
Financial assets (cash, securities, digital assets, collateral)	$9.7B
Convertible notes (0.00% coupon)	$4,166.1M face
Net financial assets	$5.53B = $12.33/share (55% of mcap)
FY26 guidance	Adjusted EBITDA above $600M (about 2x FY25)
Buyback	$2.0B authorized

Earnings-quality flag: headline P/E is unusable. Q1 net income of $389.6M included a $268.4M unrealized gain on the eBay derivative position (put/call pairs, economic exposure 22.176M eBay shares per the 10-Q; stake since reported near 7.8%) and $83.7M net interest income on the cash pile. Core retail operating income of $143.3M is the number that matters.

2. The capital structure IS the thesis

Two zero-coupon convert tranches — 2030 notes (conversion price about $29.85) and 2032 notes ($28.91) — total $4.17B and convert into roughly 144M shares. About 59M warrants struck at $32.00 expire October 30, 2026. Result: a dilution ceiling at $29–30 that mechanically dampens upside, against a cash floor of $12.33/share under the stock. GME is structurally engineered to trade in a band. Bitcoin of about $519M sits inside the financial assets and passes crypto volatility straight through the P&L.

3. Collectibles: the business is rotating under the ticker

Period	Collectibles rev	% of total	YoY
FY2024	$717.9M	18.8%	—
FY2025	$1,060M	29.2%	+47.7%
Q1 FY2026	$348.9M	41.8%	+64.9%
TTM (through May 2)	about $1,197M	32.1%	—

Q1 FY26 was the crossover quarter: collectibles ($348.9M) overtook hardware ($333.7M, −3.4%) as the largest category; software fell 13.0% to $152.7M. Hardware plus software have shrunk from 81% of sales two years ago to 58%.

The margin solve — collectibles is a resale/grading business

GME does not disclose gross profit by category, so we solve residually against Q1's blended 40.7%:

Hardware GM / Software GM assumed	Collectibles GM implied
10% / 45%	68.2%
12% / 55%	61.9%
14% / 65%	55.6%

A 56–68% gross margin is not toy retail — it is reuse/grading/pawn economics (Kaitori Okoku-style buy-low-sell-high plus grading service fees via the PSA partnership and Power Packs). GME's collectibles segment is economically a resale-and-grading business wearing a retail storefront. This determines the correct comp set.

4. Three-scenario DCF

Operations valued at unlevered cost of capital 9.28% (rf 4.45% + unlevered beta 1.05, Damodaran specialty retail, x ERP 4.6%); SBC of about $40M expensed as a real cash cost (estimate — see caveats); net financial assets added; convert dilution (144M shares, debt extinguished) triggered above $29.

Scenario	p	Thesis	FV
Bull	25%	Grading flywheel, hobby-channel share gains, margin to 16%	$29.56 (dilution-capped)
Base	45%	FY26 guide hit; Pokemon-30th comp cliff decelerates FY27; legacy melts	$22.65
Bear	30%	Card cycle rolls 2027; hardware secular decline resumes; margin to 8%	$16.97
PWFV			$22.68

Reverse DCF: $22.49 implies an operations EV of $4.56B = 7.6x FY26 guided EBITDA = about 6%/yr revenue growth at a 12.5% EBIT margin. Undemanding — the meme premium is gone. The market prices GME as Best Buy plus a pile of cash.

5. Peer relative valuation

There is no pure-play US public collectibles retailer (Collectors/PSA and Fanatics are private), so the comp set spans GME's three actual businesses. GME operating multiples computed on implied ops EV of $4.56B (mcap less net financial assets).

Name	Role in comp	EV/EBITDA	P/E	Growth
GME (ops)	hybrid resale + hardware	10.9x TTM / 7.6x FY26 guide	about 11.7x ops NOPAT	+14% Q1
Best Buy (BBY)	hardware analog	5.8x	9.5x fwd	flat
Funko (FNKO)	licensed collectibles product	6.3x FY26 guide ($70–80M)	n/m (levered)	flat to +3%; Core Collectibles +17% Q1
Build-A-Bear (BBW)	experiential specialty retail, 55.8% GM	about 7.3x (Apr; stock lower since)	about 7.5x TTM at $30.31	LSD
Chewy (CHWY)	specialty growth e-com	about 14x adj (FY25 adj EBITDA $719.2M)	15.8x fwd	+7.7% Q1
eBay (EBAY)	collectibles marketplace	17.3x	18.0x fwd	+19% Q1 / +7 guide
Tay Two (7610.T)	TCG resale pure-play (JP)	—	about 13x	OP +51%
Kaitori Okoku (3181.T)	reuse/hobby chain (JP)	—	7.9x, 0.82x P/B	OP +20%
Bandai Namco (7832.T)	IP owner — reference only, not a comp (GME distributes, does not own IP)	—	17.8x	HSD

Read-through: GME's operations trade at a 30% premium to BBY and a 45–55% discount to CHWY/EBAY — exactly where a blend of 58% declining and 42% fast-growing revenue should sit. The no-growth collectibles-product tier (FNKO 6.3x, BBW about 7x) and the Japan resale tier (7.9–13x earnings despite faster profit growth) confirm there is no scarcity premium available for collectibles retail assets. GME at 7.6x guided EBITDA is the cheapest listed way to own the same trading-card boom eBay trades at 46x owner FCF for — and GME is the named share-taker in eBay's own graded-card channel (Power Packs, PSA partnership).

6. Sum-of-the-parts

FY26E revenue $3,938M (collectibles $1,537M +45%, hardware $1,731M −6%, software $671M −8%). FY26E EBITDA of $620M allocated pro-rata to estimated gross profit contribution (collectibles $386M, hardware $84M, software $150M). Segment margins are estimates — GME discloses none of this.

Case	Collectibles	Hardware	Software	Ops EV	FV/share
Low	11x	4.0x	3.5x	$5.1B	$23.72
Mid	13x	4.5x	4.0x	$6.0B	$25.70
High	15x	5.0x	4.5x	$6.9B	$27.68

All cases add net financial assets of $5.53B and land below the $29 convert ceiling, so no dilution adjustment applies — the SOTP is internally consistent.

Gap diagnosis (DCF $22.68 vs SOTP $25.70): the SOTP pays a 13x growth multiple on collectibles EBITDA at peak growth; the DCF base explicitly embeds the Pokemon 30th-anniversary comp cliff decelerating FY27. The $3/share gap is the market value of one question — is 65% collectibles growth structural (grading flywheel converting anniversary traffic into a recurring resale business across 10M PowerUp members) or cyclical (card-cycle sugar high)? The question resolves at the Q1 FY27 print.

7. Risks

1. The eBay bid is a bear case for GME shareholders, not a bull case. The $125/share offer is roughly 2x our June standalone DCF value for eBay (about $65). If the $56B pursuit somehow closes, GME overpays materially and torches the net-cash floor that anchors today's valuation. eBay has formally rejected the proposal; GME continues to pursue it while holding an economic stake near 7.8%.

2. Related-party governance. GME director Nat Turner is Chairman and CEO of Collectors (parent of PSA) — a related party under ASC 850 to the grading partnership that drives the bull case.

3. Crypto treasury. Bitcoin position of about $519M; FY25 Q4 included a $151M loss on digital assets. Volatility flows through the P&L both ways.

4. Comp cliff. The Pokemon 30th-anniversary demand wave laps in Q1 FY27 — the same clock as our eBay bear thesis.

5. Warrant expiry. 59M warrants at $32.00 expire October 30, 2026; 30% out of the money at the price basis, so the potential $1.9B inflow should not be counted on.

8. Caveats and sourcing

Price basis $22.49 (July 1, 2026 session) — re-verify before acting. Financial data primary-sourced from the Q1 FY26 8-K/10-Q (filed June 2, 2026) and FY25 10-K-derived category figures. SBC estimate of $40M/yr is unverified against the 10-K. Segment gross margins and segment EBITDA allocation are analytical estimates; GME does not disclose profitability by category. Japan peer multiples (Tay Two, Kaitori Okoku, Bandai Namco) are from the June 2026 comp work with May–early June data — dated. BBW EV/EBITDA is an April 2026 reading; the stock has declined since. eBay multiples are from our June 2026 valuation (wiis.com/psind707/se-vs-ebay-valuation). Related reading: collectibles-ip-comps-2026. Internal research note; not investment advice.