GameStop has officially confirmed the purchase of 4,710 Bitcoins for $513 million using cash raised through debt financing, according to a press announcement by the company on Wednesday.
This is the first time the company has admitted to buying any crypto since it said in March that it was planning to do so. In March, GameStop made it public that it would be raising funds via a $1.4 billion convertible notes offering.
That money has now been partly used for this crypto purchase. The speculation around this started earlier this year when GameStop began hinting at exploring alternatives outside its core retail business.
GameStop’s stock reacts to crypto pivot as financial concerns remain
Before GameStop confirmed anything, its stock had already been moving. Rumors in February caused a surge of about 18%. The March announcement drove the price up by another 12%.
On May 27, GameStop shares closed at $35 and were trading at $36.30 in the pre-market session the next morning. Over the last month, the stock is up around 30%, and about 10% higher for the year.
However, the Bitcoin buy comes while the core retail business is shrinking. The latest quarterly report shows a 28% drop in revenue year-on-year. That kind of decline doesn’t align well with the current hype surrounding the stock.
GameStop’s trailing price-to-earnings ratio is sitting above 100x, which is way out of line for a retail company. The valuation gap has raised a lot of eyebrows.
Only one analyst is still tracking GameStop on Barchart. That analyst currently has a “Strong Sell” rating on the stock, placing a target of $13.50. If that plays out, GameStop could drop over 60% from where it stands now.
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