GameStop closed the January 2021 quarter at a $21.13 billion market cap. Nine months earlier it was worth $369.6 million. The story that stuck is that none of it had anything to do with fundamentals, that it was a pure squeeze on a dying retailer with a broken income statement. Half of that is true. The other half doesn't survive the filings.
The bear case holds up on the income statement:
* Revenue fell from $8,607.9M in fiscal 2017 to $5,089.8M in fiscal 2021, down 40.9% in four years
* Operating income went from +$557.7M to -$237.8M
* Goodwill impairments of $970.7M then $363.9M took goodwill from $1,725.2M to zero
* Stockholders equity fell from $2,254.1M to $436.7M
Over the same stretch GameStop was paying down debt hard. Total debt fell from $820.8M at January 2019 to $241.0M at October 2020, a 70.6% reduction, with $404.5M repaid in fiscal 2020 and another $130.3M the year after.
At the July 31, 2020 quarter close: $260.7M market cap, $735.1M cash, $23.5M restricted cash, $250.9M total debt. Market cap plus debt minus cash and restricted cash comes out to -$247.0M. The cash balance alone was 2.8x the entire market cap, and trailing twelve month free cash flow that quarter was $320.9M. They were generating cash and priced by the market at less than zero.
I also ran the Altman Z-Score, computed from five filed balance sheet and income statement inputs: 2.4765 at January 2019, 1.9755 at July 2019 (the low point for the whole period), 2.4280 at January 2020, 2.4831 at July 2020, 2.1816 at October 2020. The distress threshold is 1.81, and the grey zone runs from there to 2.99. GameStop spent three straight years in the grey zone and never once dropped into distress. Whatever the market was pricing in mid 2020, the standard model built to catch bankruptcy risk wasn't agreeing with it.
Aggregated 13F filings showed institutions reporting more GameStop shares than GameStop had issued, for four consecutive quarters. 123% of shares outstanding at March 2020, still 113% at December 2020. Not proof of anything on its own, but it's a real structural fact about who was holding the float, sitting in public filings a year before anyone was talking about it.
The point isn't that GameStop was secretly a good business. Revenue was cratering and equity had fallen 80% in four years, that part of the story was correct. The point is that "priced for bankruptcy" and "priced below its own cash, with debt falling every quarter" are two different claims. Only one of them was the story anyone told, the other had been sitting in the filings for months.