Summary GameStop is upgraded to a buy rating as fundamentals show a clear turnaround, with top-line growth and improved operating efficiency. GME posted a 21.78% YoY net sales increase and a significant operating income swing, beating analyst expectations and signaling robust demand. The company added substantial debt, likely to fund Bitcoin purchases, increasing risk but potentially positioning GME for further gains. Despite mixed technicals and ongoing meme stock volatility, GME's low valuation and improving outlook suggest room for multiple expansion and upside. GameStop Corp. (GME) is the original meme stock. During the middle of the year, I initiated it at a sell rating as I believed GameStop was priced for turnaround perfection. While there were indeed signs of improvement, the surge in the valuation was a major deterrent in my view. Since that article, the stock has dropped around 20% and so it seems my cautiousness was well justified. In today's analysis, we'll analyze their most recent results to look for more signs of a turnaround. In the below analysis, clear signs of an inflection point are shown. Finally, the top line has shifted back to growth and the company's operating efficiency is also encouraging. They did add a considerable amount of debt likely for Bitcoin ( BTC-USD ) purchases and so investors should note that there may have been a shift in the risk profile. That said, the forward P/S ratio is likely primed for expansion ahead due to strengthening fundamentals. As a result, I have decided to double upgrade GameStop to a buy rating despite mixed technicals. Seeking Alpha Net Sales Rebound Data by YCharts GameStop reported 2025 Q2 earnings on September 9th and won't report again until December. The company generated net sales of $972.2 million in the quarter, representing a growth rate of 21.78% YoY. This indicates demand is rebounding and the turnaround for the top line is progressing nicely. In above chart you can see that net sales bounced back after a multiyear low in the previous quarter. Furthermore, the top line growth rate has soared back up into positive territory. Q2 marks only the second positive growth quarter in the past three years and so it really is something to celebrate about. Judging from the growth rate, an inflection point for the business seems to be in. Lastly, GameStop crushed analyst expectations as they beat by $148.96 million. For a company that has less than $1 billion in sales, it is a massive beat that pleasantly surprised the market. Overall, I believe business activity is now headed in the right direction and that is particularly nice to see considering that consumer confidence in the U.S. isn't overly strong currently. Strong Operating Efficiency Data by YCharts For GameStop's margins, there are some mixed signals but as a whole, I would say that the positives significantly outweigh the negatives. As you can see above, gross margin actually contracted a bit YoY and that could be an indication that consumers are shifting to cheaper goods. Therefore, while overall demand is robust, consumer behaviour may have indeed been affected by low confidence. However, the great improvement in the company's operating efficiency translated into an operating income improvement from -$22 million in the prior year period to +$66.4 million in this year's Q2. That is a major jump. While net sales grew by a more than respectable 21.78%, SG&A expense actually dropped by 19.20% to $218.8 million. Management is clearly streamlining the business effectively and that is significantly helping their profitability. In fact, for the bottom line, they reported an adjusted EPS of $0.25, up 2,400% YoY. While that growth rate is obviously inflated due to a low growth base, they were able to beat expectations by $0.10. Like for net sales, that is not a small beat given the size of their earnings currently and so again there was considerable outperformance. Cash Position & Debt In Q2, GameStop was a able to generate $117.4 million in operating cash flows. That is quite a healthy amount and is a 71% jump from the year ago quarter. Cash generation is therefore strong but the great YoY increase in cash is actually not from their operations. As of August 2nd, their cash and cash equivalents stood at $8.6944 billion, more than double the balance on August 3rd, 2024. It was reported that GameStop received $4.15 billion from a convertible notes offering. Looking at their balance sheet, you can see that their long term debt ballooned YoY to $4.1609 billion from just $12.4 million. Firstly, that is a major change in capital structure. It does provide the company with an ample amount of cash but this major increase in debt adds a significant amount of risk. With both their operating and free cash flows now being positive, is the extra cash really needed? It may be related to their new Bitcoin ambitions. Bitcoin Stockpiling Earlier this year, the company announced a partial change in strategy. Instead of being purely a business focussed on selling games, it is transitioning into a company that holds a significant amount of Bitcoin. Back in late May, GameStop acquired 4,710 Bitcoin. Back then, their position was valued at $513 million. It was reported that their board of directors approved to add Bitcoin as a treasury reserve asset. At the end of their Q2, they reported that their holdings were valued at $528.6 million and so it seems that they have had notable gains. Now, they are seemingly following in Strategy's (NASDAQ: MSTR ) footsteps. As stated above, with cash flows being significantly positive, there is no good reason to add massive amounts of debt to boost cash levels. It can be inferred that they will use the cash raised from the convertible notes to acquire more Bitcoin moving forward. With their legacy business showing good signs of bouncing back, time will tell whether this pivot to Bitcoin is a good idea or not. Still A Meme Stock? GameStop may be less of a meme stock now than a few years ago but investors should still expect it to behave as a meme stock some of the time moving forward. Just yesterday morning (Oct 27th) the stock soared pre-market as the White House reposted a GameStop statement on X regarding Halo coming to Playstation for the first time ever. This supposedly ends the "console wars." The White House's repost featured "an animated picture of President Donald Trump in a combat suit saluting the U.S. flag" and this reportedly resulted in a "meme-fueled rally." Therefore, investors should keep in mind that this stock may act in volatile and perhaps irrational ways that a normal stock won't. Multiple Expansion Likely Data by YCharts Although higher than levels back in late 2023 and early 2024, the current reading of 2.506 for the forward P/S ratio is quite low for GameStop in terms of the past year or so. This potentially indicates opportunity. In today's analysis, it was shown that a real turnaround seems to be happening for the company. Sales have swung back to growth and their operating efficiency has improved significantly. GameStop has added debt to their balance sheet likely to fund Bitcoin purchases but following in the footsteps of Strategy may not be too bad of an idea at this point. Overall, it seems the fundamentals have hit an inflection point and a true turnaround seems to be materializing. It is now clearer than ever that GameStop may actually stage a rebound. While that's the case, the forward P/S sits at quite a low level when looking at the July 2024 to present period. Therefore, I would say that there is room for multiple expansion and so buying at current levels may not be a bad idea. Technical Analysis Yahoo Finance For the long term, the 50 day SMA remains below the 200 day SMA after a death cross back in late July. However, the deviation between the SMAs is narrowing and it seems that a golden cross may not be too far away. This should give hope to the bulls. As for the near term, the stock was rejected by the Bollinger Bands midline just on the previous trading as a sign that the bears remain in control. The RSI has also failed to break above 50 also showing that the balance of power is currently with the bears. That said, if you look at the MACD indicator, the histogram has been green for quite a while and so downward momentum seems to be in retreat currently. In addition, a bullish crossover in the MACD looks to be imminent. Therefore, there may be some signs that the bulls are fighting for control in the near term. Overall, I would say that the technical setup for GameStop stock is currently mixed. Takeaway GameStop may still have some meme stock attributes but from my analysis today, I believe it is clear the company's fundamentals are really improving. As stated a little while ago, the top and bottom lines are looking quite good and while their move into Bitcoin may be a questionable one, it may also payoff moving forward. As stated above, the valuation is quite low relative to the past year while the outlook hasn't looked this good in years. Therefore, I believe the stock is undervalued currently and investors could benefit from multiple expansion. While the technicals are a bit mixed, I have decided to double upgrade GameStop to a buy since the company is essentially saying "Game On."