Here’s the best video game stock, according to analysts
Video game stocks have been in a vicious bear market alongside just about everything else these days. Therefore, in this article, we’ve used TipRanks’ comparison tool to look at two gaming behemoths – EA and TTWO – that seem to have too much recession risk factored into their stock prices. With all the industry consolidation we’ve seen in recent years, I also wouldn’t be surprised if either stock were gobbled up by a company looking to make a splash in the game. Of the two stocks, analysts are the most bullish on TTWO, but let’s dig deeper.
Although video games tend to be considered “nice to have” during tough economic times, I consider them to be one of the most affordable forms of entertainment on an hourly basis. Simply put, games are a great value proposition for consumers looking to be prudent with their spending.
Gaming consoles can be a big expense, but gamers who have finally gotten their hands on the latest Xbox Series X or PlayStation 5 are eagerly awaiting the latest slate of next-gen titles.
Indeed, the video game market is developing quite rapidly. The impending recession has taken a step forward against video game stocks. However, there seems to be too much pessimism, given that a rise in unemployment due to the recession could pave the way for consumers to substitute “going out” instead of staying in and playing a game. Without further ado , let’s take a look at EA and TTWO.
Electronic Arts is one of gaming’s oldest behemoths. The company, best known for its annual slate of sports titles, has seen its stock hit a brick wall in recent years. The stock has been stuck in a $120-$140 consolidation channel since mid-2020.
It’s not easy to thrive in games. Like big-budget movies, there’s a lot of risk in spending big bucks on a title that isn’t even guaranteed to draw crowds. With disappointing titles like Battlefield 2042companies like EA are forced to think twice before committing to new projects.
Indeed, taking risks on big budget titles can come with huge rewards (think hit games Apex Legends), but it’s proven difficult to stay on the content spending wheel these days, especially with growing competition from gaming giants like Microsoft (NASDAQ: MSFT).
Given the random nature of the game, the market seems to favor companies with the deepest pockets and the least to lose. Now, EA is no slouch, with its $34.1 billion market cap. However, it might ultimately be in better hands under the umbrella of a tech or media giant.
Even without a contender, EA is pushing into the fastest-growing mobile gaming market with its hit title, Apex Legends. Additionally, EA has been involved in industry-wide consolidation itself – with Codemasters and Glu Mobile.
The future is pretty hazy, especially if Microsoft keeps rolling and trading in the gaming space. Either way, EA’s stock price doesn’t have much in mind.
The stock is trading at 39.1x earnings and 4.8x sales. The multiple looks rich relative to its growth, likely due to its scarcity premium (the number of publicly traded gaming stocks has shrunk) and the growth potential of the gaming market.
What is the price target for EA stock?
Wall Street remains bullish on EA stocks with a “Moderate Buy” rating. The average EA stock price target is $152.20. This implies a 23.1% increase from current levels. An impressive gain for a company that would be a very attractive takeover target for any entertainment heavyweight.
Shares of Take-Two Interactive have been decimated in recent years, now down more than 43% from their all-time highs at just under $215 per share. Although there were a handful of intriguing titles like Tiny Tina’s Wonderland to entertain players ahead of the highly anticipated Grand Theft Auto (GTA) VIIit’s clear that investors simply can’t wait any longer.
With an announced budget of $2 billion for GTA VI, it sure looks like Take-Two is putting most of its eggs in one basket. For an investor, this is not a good thing. Either way, I view TTWO stocks as a cheap upside game for those willing to be patient.
As I noted in a previous article, GTA VI cannot afford to rush production and risk a difficult launch day. Budget overruns and delays would not surprise me. Although such setbacks may add further downward pressure on the stock. Either way, GTA seems to be one of the few franchises that’s all but guaranteed to be a smash hit once it’s ready.
Like EA, Take-Two wants to diversify into mobile. The Zynga deal gives Take-Two a nice footing in the mobile gaming scene. While Zynga and other titles may help fuel a rebound in TTWO stock, GTA VI still looks like a “make or break” for the company.
Industry insiders are pinning a GTA VI launch in the 2024-25 range. That’s a long wait in a stock that can’t seem to catch a break. At just 5.3 times sales, however, I think the stock is depressed enough to rally well before GTA lands.
What is the target price for TTWO stock?
Wall Street remains patient with TTWO stocks, with a “Strong Buy” rating. The average TTWO stock price target of $166.15 implies a 36.9% upside over the coming year. That’s a solid gain for a company that’s likely to be much higher three years from now.
Conclusion: Wall Street expects a higher rise in TTWO stock
EA and Take-Two are under pressure, but their long-term prospects look solid. Both companies have comprehensive pipelines and robust mobile businesses. Between the two names, Wall Street prefers Take-Two stocks.