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Why Gaming Stocks Are a Safe Bet after Their Recent Price Fall

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Dec. 3 2018, Published 2:07 p.m. ET

Stocks trading at a significant discount to analysts’ estimates

The recent market pullback has resulted in several gaming stocks trading at 52-week lows. We’ve seen that Activision Blizzard (ATVI), Electronic Arts (EA), Take-Two Interactive (TTWO), Zynga (ZNGA), and Glu Mobile (GLUU) are trading at discounts of 48%, 49%, 32%, 30%, and 5%, respectively, to their 12-month analyst price targets.

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Revenue and earnings growth

While Activision Blizzard’s sales are expected to rise 4.4% this year, revenues for EA, TTWO, Zynga, and Glu are expected to rise 0.6%, 49.3%, 11.8%, and 18.5%, respectively, this year.

Earnings for ATVI, EA, TTWO, Zynga, and Glu are expected to rise at a compound annual growth rate of 12%, 13%, 35%, 30%, and 15%, respectively, over the next five years.

This robust earnings expansion should result in more cash availability for gaming companies that in turn can be used for product development and acquisitions.

New gaming avenues

Gaming companies are now not just dependent on blockbuster titles to drive revenue growth. The shift to digital and mobile gaming coupled with the advent of cloud gaming has opened up new revenue verticals as well as improved profit margins.

High growth verticals such as esports are still largely untapped. The global gaming market is expected to grow at an impressive pace over the next few years. If these companies can continue to gain traction, there’s no reason why investing in gaming stocks shouldn’t lead to exponential returns yet again.

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