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How Take-Two’s Valuation Compares with Peers

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Price to earnings

Take-Two Interactive (TTWO) has a forward PE ratio of 28.9x for 2019. This valuation seems reasonable given the company’s significant revenue and earnings growth this year of 48% and 43%, respectively. In fact, the stock seems grossly undervalued compared to its robust earnings and sales growth in 2019.

Its forward PE for 2020 is 33.9x. If we compare this ratio to its estimated revenue and earnings growth of -5.7% and 3.3%, respectively, we see that the stock is still trading at a premium for 2020. However, as earnings are expected to rise at a compound annual growth rate of 21.3% over the next five years, investors may want to consider Take-Two.

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Market cap to revenue

Take-Two Interactive has the lowest market-cap-to-revenue, EV-to-revenue, and EV-to-EBITDA ratios among its peers, as the table above shows. TTWO’s market cap to revenue ratio stands at 3.66x. Peers ATVI, EA, and Zynga (ZNGA) have market-cap-to-revenue ratios of 5.61x, 6.31x, and 3.74x, respectively.

Profit margins

TTWO has an operating margin of 22.7%, which is higher than Zynga’s 15.7%, but lower than EA’s and ATVI’s operating margins of 29.2% and 33.30%, respectively. EA, however, leads with a net margin of 21% compared to 17% for ATVI and 12.6% for TTWO.

ROA and ROE

TTWO’s ROA (return on assets) is 12.4%, while its return on equity (or ROE) is the highest among peers at 27.3%. EA, ATVI, and Zynga have ROEs of 12.6%, 22.6%, and 10.2%, respectively.

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