A $1.4 Billion Reason to Buy GameStop Stock Now

Shares of specialty retailer, and meme stock legend, GameStop (GME) rallied 2.8% intraday on Aug. 31, as the company announced that it has amended its agreements with certain noteholders to exchange and cancel about $1.40 billion of its convertible notes due 2030 and 2032.

In the original terms, the exchange was to be settled entirely in shares of GameStop's class A common stock. However, under the amended terms, noteholders will receive approximately 55.5 million GameStop shares and $358.40 million in cash (funded from the company's existing cash balance).

Shareholders enjoyed this move, as it essentially retires $1.40 billion in debt, cutting its long-term debt load without using much cash. However, this also raises share dilution.

Let's take a closer look at GameStop now…

GameStop, headquartered in Grapevine, Texas, is a video-game and consumer-electronics retailer best known for the 2021 short squeeze that turned it into a market landmark. It is a global specialty retailer of video games, consumer electronics, and gaming accessories, operating both physical stores and e-commerce platforms.

Once the largest mall-era game retailer, GameStop has narrowed its footprint while expanding into collectibles and digital initiatives. The company has a market capitalization of $8.25 billion.

GameStop's stock is down about 20% over the past 52 weeks mainly because of investor concerns over share dilution and uncertainty around its strategic plans. This year, the stock is down 6%. The stock had reached a 52-week low of $17.79 on Aug. 20 but is up about 6% from that level.

On a forward-adjusted basis, GameStop's price-to-earnings (non-GAAP) ratio of 14.14x is lower than the industry average of 15.81x.

GameStop Posted Higher Profit and Revenue in May-Ended Quarter

For the quarter ended May 2, GameStop reported revenue of $835.30 million, up 14% year-over-year (YoY). The tailwind came from the company's aggressive push into high-margin collectibles. Its collectibles revenue rose 65% from the prior-year period to $348.90 million, accounting for 41.8% of net sales and becoming its largest segment. On the other hand, its hardware and accessories revenue declined by 3.4% to $333.70 million, while software revenue decreased by 13% to $152.70 million.