Activision Blizzard is trading 44% below its 52-week high
Shares of leading gaming company Activision Blizzard (ATVI) have fallen 44% since the start of October 2018. The tech sell-off, tepid guidance, and competition from hugely popular games such as Fortnite and PlayerUnknown’s Battlegrounds have contributed massively to this decline.
ATVI is currently trading 44% below its 52-week high of $84.68 and 19% above its 52-week low of $39.85.
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A Look at ATVI’s valuation
Activision Blizzard has a forward 2019 PE ratio of 35.4x. For 2020, its forward PE ratio is 25.0x. Analysts expect ATVI’s sales to fall 11.6% in 2019 and then rise 10.5% in 2020. Its EPS are expected to fall 15.4% in 2019 and then rise 16.8% in 2020. Its EPS could grow at a compound annual growth rate of 7.3% over the next five years.
The stock looks overvalued given its expected negative revenue and earnings growth for 2019 and its relatively high PE ratio. Though the company is expected to return to revenue growth in 2020, it’s still expensive at a PE of 25.0x.
Of the 27 analysts covering ATVI, 20 have given it “buy” recommendations, seven have given it “holds,” and none have given it “sells.” The average 12-month target price for ATVI is $52.70, which indicates a potential upside of 11.5% from its current level.
While the global gaming industry is expected to grow in the double digits in 2019, Activision Blizzard is struggling with revenue growth driven by the fall in its number of monthly active users. The company will experience a decline in sales for the first time in almost a decade, which will pressure its margins.
For the stock to be an investor favorite again, it will need to surprise investors with an encouraging outlook as well as an earnings beat.