After enjoying surging valuations thanks to pandemic-driven tailwinds and the broader run-up for growth stocks, video game stocks have cooled off a lot. Positive engagement tailwinds receded as many parts of the world moved closer toward business as usual, and the rising interest rate environment has applied pressure to the stock market at large.
But the interactive entertainment industry still holds plenty of promise, and backing top players in the space could prove very rewarding for long-term investors. Currently trading down 48% from its peak, Take-Two Interactive (TTWO -0.46%) stock in particular looks like a smart buy right now. Read on to see why building a position in this gaming company could take your portfolio to the next level.
Image source: Getty Images.
Take-Two has arguably never looked stronger
Take-Two Interactive is one of the world's leading publishers of video games. Housing an impressive collection of individual development studios, the company is responsible for some of the industry's biggest and most profitable franchises. In fact, one of its games stands as the single most profitable entertainment release in history.
Grand Theft Auto V (GTA V) first hit store shelves in 2013 for Sony's PlayStation 3 and Microsoft's Xbox 360 platforms, but it's remained an industry mainstay and continued to post sales in subsequent years. Aided by updates and rereleases on PC and new generations of consoles, GTA V has now shipped over 170 million copies worldwide. Even better, the game's hugely popular Grand Theft Auto Online multiplayer component has served up billions in high-margin spending through player purchases of in-game currency.
Perhaps more than any other modern title, GTA V exemplifies the business value and profit potential of what can be achieved with a game that functions as a consistent, living product. With a sequel to the hugely successful video game likely to hit the market within the next couple years, Take-Two stands to see another huge surge in business.
Crucially, Take-Two is also far from being a one-trick pony, and it has other hit properties and development resources that should help the company continue serving up strong results through the next decade and beyond. In addition to its marquee franchise, Take-Two also scored big hits with entries in its NBA 2K and Red Dead Redemption franchises.
Spurred by the incredible performance of GTA V and the strengthening of its overall product portfolio, the company posted impressive sales growth over the past decade.
TTWO Revenue (TTM) data by YCharts
Beyond core upcoming releases for consoles and PC, Take-Two's purchase and subsequent integration of mobile games specialist Zynga also has the company on track to be making a much bigger impact on smartphone and tablet platforms. Between its strong stable of bankable franchise properties and ability to address a truly cross-platform audience, the company is in a great position to play a leading role in the long-term growth of the interactive entertainment industry.
Take-Two is cheaper than it looks at first glance
It's worth keeping in mind that Take-Two's business remains somewhat cyclical. While the rise of in-game purchases and the strengthening of its overall product catalog did a lot to smooth out the company's business performance, the publisher's best years are still driven by the release of major blockbuster titles. With Grand Theft Auto VI likely on track to debut in the next couple of years, the publisher could see an explosion of sales, earnings, and free cash flow in the not-too-distant future.
TTWO PS Ratio (Forward) data by YCharts
With the company sporting a market capitalization of roughly $18.7 billion and trading at 27.5 times this year's expected earnings and 3.4 times expected sales, Take-Two stock looks primed to be a massive winner for long-term investors who buy the stock at today's prices. Amid bearish conditions still shaping today's market backdrop, this is a growth stock I think investors should be loading up on.
