The top video game stocks have significantly outperformed the market this year, as players have spent plenty of time in front of the screen during the pandemic.

Investors have placed the highest value on Take-Two Interactive (NASDAQ:TTWO), which currently commands a forward price-to-earnings (P/E) ratio of 36 times analysts' earnings estimates for fiscal 2021. Both Activision Blizzard and Electronic Arts have a forward P/E right around 26 at the time of this writing.

One reason Take-Two's P/E is higher is that management's guidance calls for lower revenue and earnings this year, as the company deals with a lighter game slate and higher expenses for new releases in the pipeline. 

But looking out to fiscal 2022 earnings expectations, Take-Two still commands a higher P/E of 31 times the consensus earnings estimate for that period. Here's why investors are paying a big premium to buy shares of the Grand Theft Auto maker.

A hand holding a video game controller with a game displayed on a TV in the background.

Image source: Getty Images.

Grand Theft Auto's outperformance may continue

In June, Take-Two's Rockstar Games announced that Grand Theft Auto V would be coming to Microsoft's Xbox Series X and Sony's PlayStation 5. The new expanded and graphically enhanced version of the best-selling franchise will release during calendar 2021.

What's more, there will be a stand-alone version of Grand Theft Auto Online releasing in the second half of 2021. This new stand-alone version will be available free exclusively for PlayStation 5 owners for the first three months following the game's release.

Grand Theft Auto Online is the multi-player portion of the game. It's widely popular and is currently included free with Grand Theft Auto V. But the announcement seems to suggest that Take-Two is planning to charge for access to the multi-player portion on the next generation of consoles, which could be significant for revenue growth. As an added incentive to upgrade, Rockstar will offer additional content exclusively for the new consoles and PC.  

For several quarters now, management has remained cautious with its outlook on sales of Grand Theft Auto, but the game has consistently outperformed expectations. It has sold 135 million units since 2013 -- that's up from 22% over the year-ago quarter. Rockstar is good at making games, and it's being rewarded for it.

The longer that Grand Theft Auto V performs well and sells more copies, the larger the built-in audience will be for the sixth installment, which could release during the new console generation. That's likely one reason why the shares trade at a premium right now.

Other franchises are growing too

Rockstar also develops the Red Dead Redemption franchise, which is sort of like a sibling title to Grand Theft Auto. Both games follow the same game design, except one is set in a modern city, while the other is a Wild West adventure. The original Red Dead Redemption sold about 15 million copies. Red Dead Redemption 2 released in the fall of 2018 and has already sold 32 million copies. 

The NBA 2K franchise continues to grow too, with net bookings on pace to be the highest for any 2K sports title in history. 

Borderlands 3 released last year and has sold 10.5 million units so far, up 69% over the previous title in the series. 

There's a pattern here. Take-Two is establishing a record of making its top franchises bigger and better with each new release, and that seems to be reflected in the stock's high valuation.

Throw on top of that a deep pipeline with 93 titles in development for release within the next five years, including the upcoming football games releasing under the official license of the NFL, and that's why investors are high on the growth prospects of Take-Two.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.