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Has Activision Blizzard Stock Bottomed Out?

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Jun. 4 2019, Published 10:28 a.m. ET

Activision’s returns

Activision Blizzard (ATVI) has burnt significant investor wealth since the start of October 2018. Its stock rose at a CAGR (compound annual growth rate) of 37.0% between October 2013 and October 2018, but it’s since fallen 49.0%.

Activision Blizzard and its peer gaming companies have been hit by the overwhelming success of Fortnite and PlayerUnknown’s Battlegrounds. ATVI’s sales are expected to fall 12.0% in 2019—a time when the global gaming industry might achieve a double-digit growth rate.

Gaming stocks are somewhat cyclical, as they bank on popular franchise releases to drive sales. Popular gaming franchises rake in billions of dollars and are key to revenue growth. So has ATVI stock bottomed out after a disappointing 12 months?

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Investment bank Goldman Sachs (GS) seems to think so. Goldman recently upgraded the stock from a “neutral” to a “buy” and added ATVI to its Americas Conviction List. Goldman Sachs sees “a potential inflection in ATVI’s earnings trajectory,” and it’s optimistic about Activision’s new content releases and upcoming releases coupled with its potential to monetize its franchises.

PE multiple

ATVI stock is trading at a forward PE multiple of 16.5x. While its earnings are expected to fall 16.90% this year, they’re expected to rise 18.5% next year. ATVI’s earnings are expected to rise at a CAGR of 7.3% over the next five years.

In comparison, the company’s earnings have risen 31.0% in the last five years. Its sales are expected to grow 9.0% annually between 2019 and 2021. It looks like ATVI is a solid pick, as it seems set to return to earnings and revenue growth post-2019.

Analysts’ estimates

Of the 27 analysts tracking ATVI, 20 have given it “buys,” seven have given it “holds,” and none have given it “sells.” Analysts have a 12-month average target price of $52.93 on the stock, which indicates a potential upside of 25.0% from its current price.

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