There's an old -- and very appropriate -- investing saw that says, "Tips are for waiters." So I'm not going to bother giving you a stock tip. I do, however, have a stock idea for you.
What's the difference? Well, a stock tip is generally a hush-hush, wink-wink affair where the tipper expects the tip-ee to run out and buy the stock based on the tip alone. A stock idea, on the other hand, is a good starting point, but is in need of further research before it becomes a fully baked investment thesis.
So let's cut the jibber jabber and get right to today's idea, Activision Blizzard (Nasdaq: ATVI ) . The Motley Fool's CAPS community has overwhelmingly recommended this stock, with nearly 4,200 members giving it an outperform rating, versus just 93 who have rated it an underperformer.
To get a better look at how Activision Blizzard stacks up, let's take a look at how it compares to other companies in the video game industry:
|
Company
|
TTM Net Profit Margin
|
TTM Return on Equity
|
NTM Estimated Price-to-Earnings Ratio
|
CAPS Rating (out of 5)
|
|
Activision
|
1.1%
|
0.7%
|
18.7
|
*****
|
|
Nintendo (OTC BB: NTDOY.PK)
|
15.2%
|
22.5%
|
NA
|
*****
|
|
Take-Two Interactive (Nasdaq: TTWO )
|
(1.9%)
|
(4.1%)
|
35.7
|
****
|
|
Electronic Arts (Nasdaq: ERTS )
|
(25.8%)
|
(29.1%)
|
23.5
|
***
|
|
THQ (Nasdaq: THQI )
|
(51.9%)
|
(82.7%)
|
115.2
|
**
|
Source: CAPS, Yahoo! Finance, and Capital IQ, a division of Standard & Poor's.
TTM = trailing 12 months. NTM = next 12 months.
As you can see from the chart above, with the exception of Nintendo, the companies in the video game industry have had a tough time over the past year. Activision Blizzard's picture is clouded by the merger between Activision and Blizzard last year, with all the headachy accounting and financial statements that kind of thing inevitably involves.
Despite this, it managed to stay profitable during the past year while three of its rivals did not. And, based on expected earnings over the next year, it is trading at a lower multiple than its competitors.
Of course, when we go beyond the numerical chart and look closer at Activision Blizzard's business, we can find quite a few other reasons that CAPS members might like the company. World of Warcraft, Guitar Hero, and Call of Duty -- three of Activision's smash hit games -- would probably all be high on that list.
But to get a closer look at why CAPS members are taken with Activision, let's take a look at what CAPS All-Star novaphi had to say when rating the stock an outperformer at the end of last year:
Set up for a banner year of earnings. 2009 holds the release of games for 2 of Blizzards biggest franchises: Diablo and Starcraft. As a gamer I hate that starcraft 2 is going to be split into three games. As an investor I got to say hell ya. Blizzard never fails to turn out great games and they have loyal fans who will buy these games early making their releases huge. If you are looking for an investment in a growing industry Activison/Blizzard is a prime company to buy into.
So what do you think? Is this an idea worth pursuing or is Activision Blizzard an overrated stock? Head over to CAPS and let the 135,000-member community know what you think.
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