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1 Top Gaming Stock Investors Should Consider as the Market Turns Red

By Rachel Warren, Toby Bordelon, and Jose Najarro – Dec 17, 2021 at 10:52AM

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This company is trading on sale right now.

With so many stocks trading down right now, you're not alone if you're looking for great stocks to buy at a bargain. In this segment of Backstage Pass, recorded on Dec. 3, Fool contributors Jose Najarro and Toby Bordelon discuss a well-known gaming stock that investors should consider taking a second look at right now.

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Jose Najarro: The one I'm taking a look at right now is one I don't have in my portfolio. This is going to be Roblox (RBLX 3.18%), ticker RBLX. This is in the gaming industry and if we can share my screen right now. Give me a quick second.

Stock is down about 15.5% from its all-time highs. I do wish it drops a little bit more before I start thinking of opening up a heavier position. Right now it's probably more of just like nibble, if I decide to go into Roblox. But if we take a look at their fundamentals, trailing-12-months revenue just continues to grow. About $1.6 billion if we take a look at trailing 12 months.

Their cash flow from operations are super positive as well; $715 million close to, I want to say 40% cash flow from operations margins, which is what I like to see. This is a company that many investors were worried that was going to be a COVID play as it was a gaming company, but in their most recent earnings they continue to show strong growth in user growth in hours played. It's definitely been a winner, not just during the COVID environment, but also as things are opening back up.

Another thing that I found super exciting about Roblox is in their most recent earnings, this is a gaming company, so many people consider this a game for just kids. Before this quarter, over 50% of their users were kids under the age of 13. This was actually the first quarter where more than 50% are people over the age of 13.

We can see their market is growing. Either the kids that were playing before are obviously getting older so that can also be helping this age group. But we're also seeing a lot of companies do partnerships or create their own Roblox experience in their game. I believe Nike was the most recent during the Halloween holidays. We saw, I think Chipotle created something, we've seen the shoe company like Vans create some form of experience on Roblox.

It's becoming a leadership in some form of advertising and I believe this is probably a new way of advertising. In my opinion, we're seeing a lot of companies moving into the market. We're also seeing older gamers move into that game as well. I do wish it drops a little bit more before I really start to think about nibbling a position, but it's one that I'm keeping my eyes on at the moment.

Toby Bordelon: Nice. That's an interesting company. I did a Deep Dive on that with Brian Withers. It was a couple of months ago. Backstage members take a look for that. I think was one of the first picks for the Backstage portfolio. It's one of those first few times we did back in that first week of the Backstage launch. Look back at that if you're interested in that company. Interesting company, thank you, Jose. 

Jose Najarro has no position in any of the stocks mentioned. Rachel Warren has no position in any of the stocks mentioned. Toby Bordelon owns Chipotle Mexican Grill. The Motley Fool owns and recommends Chipotle Mexican Grill, Nike, and Roblox Corporation. The Motley Fool has a disclosure policy.

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