Share prices of Take-Two Interactive (TTWO -0.35%) are up 30% over the last year but have pulled back since the company's last earnings report was released in February. The video game producer offered weak guidance for next quarter, but Citigroup analysts still see a favorable upside for investors over the next year or so.
Citi upgraded the shares to a buy rating with a price target of $200, representing a 12-month upside of more than 29% over the current share price. The timing of the release of the next game in the Grand Theft Auto (GTA) series plays a big role in where the stock goes from here.
Is Take-Two stock a buy?
Take-Two generates the bulk of its revenue from a handful of top sellers in its catalog. GTA is one of those, which played a big role in the company's growth. The stock has returned 628% over the last 10 years, which is why the scheduled 2025 release of the next installment is a major growth catalyst. However, Citi analysts note that it's uncertain how much revenue the game will generate once it's released.
Meanwhile, Take-Two is experiencing weak sales in mobile games and lower-than-expected performance in NBA 2K24. Citi sees the potential for the stock to dip as low as $130 a share. But the firm also sees a case for the stock to reach $235, which would assume all goes well with next year's GTA VI release.
Using next year's consensus revenue estimate, the stock currently trades at a forward price-to-sales (P/S) ratio of 3.28, which is below its previous five-year average of 4.88. In other words, assuming Take-Two meets Wall Street's revenue estimate next year, the stock could exceed the analyst's $200 price target if the stock trades at its historical average P/S multiple.
