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What: Shares of GameStop (NYSE:GME) fell 11.3% in May 2016, according to data from S&P Global Market Intelligence.

So what: The slide started early. GameStop co-founder and former CEO Dick Fontaine announced his retirement from the board on May 2. Share prices declined by 7% over the next three days, all on muted trading volume. The stock continued to fall through the middle of the month on little GameStop-specific news. The largest single-day plunge was a 3% dip on May 11, when a competitor gave up on its digital gaming portal. This was seen as bad news for the game distribution market in general.

Finally, the company reported first-quarter results on May 26. Sales were in line with Wall Street's estimates and earnings came in ahead of expectations. But earnings guidance for the second quarter was disappointing, and investors lost patience with the stock. Overall, GameStop shares took a 4% haircut on the news.

GME Chart

GME data by YCharts.

Now what: The company is working hard to shed its traditional bricks-and-mortar retail core in favor of a more direct digital distribution system. But that's not an easy game to play, because every step in the direction of juicier margins comes with a side of lost revenue. It's a tricky balancing act. If GameStop botches this important transformation, it would hardly be the first old-school retailer to die a digital death.

As dangerous as this trek may be, it is also crucial to make these moves before it's too late. GameStop is not only fighting e-commerce specialists and other traditional retailers with an online arm, but game consoles themselves come with their own online game-buying portals these days. Traditional game discs are becoming quaintly outdated. Running the largest game retailer store chain is kind of like dominating the market for buggy whips or telegraph services.

Today, GameStop shares have fallen 35% over the last 52 weeks. The stock trades for a minuscule 7.6 times trailing earnings and 1.4 times book value. If you think the company is destined to mishandle the digital transformation, these prices look correct. Otherwise, you could set up a small stake to bet on a rewarding turnaround story from a low starting price.

Personally, I'll stay on the sidelines. Digital sales account for less than 13% of GameStop's quarterly sales, leaving me unconvinced that the company is leaning into this next-generation business hard enough.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.