Take-Two Interactive (TTWO +0.15%) has been a good investment depending on when an investor bought shares. Over the last five years, the stock's 35% return trailed the S&P 500's 87% gain. But in the previous one- and three-year periods, Take-Two stock outperformed, rising 30% and 125%, respectively. The S&P 50 rose 13% and 68% for those two respective time periods.
The roller coaster in the stock's performance over the last five years reflects swings in investor sentiment amid slowing industry growth. However, Take-Two is currently growing much faster than the gaming industry, making the stock attractive heading into next year's highly anticipated launch of Grand Theft Auto VI -- one of the best-selling video game series of all time.
NASDAQ: TTWO
Key Data Points
Take-Two's business surged this year
The stock's modest gain since 2020 reflects an industry that has seen annual growth slow from around 10% to 2% per year. However, this highlights Take-Two's recent surge in bookings, which increased 33% year over year in the most recent quarter.
Recurrent consumer spending, including sales of in-game items and virtual currency, makes up over 70% of the business. This means Take-Two's growth is being driven by players spending more time in games, which reflects the company's commitment to investing in highly engaging gaming experiences and ongoing content updates.
While the stock appears expensive, trading at 74 times this year's consensus earnings estimate, it's not as expensive as it initially seems. The forward earnings multiple drops to 31 when looking further out to fiscal 2027 earnings estimates. This reflects record revenue and earnings expected from Grand Theft Auto VI, scheduled to release in November 2026.
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Business fundamentals are all that matter
Stock prices can fluctuate from year to year, but over time, they tend to follow the underlying business's growth. Investors who stay focused on a company's long-term prospects are in the best position to use those share price swings to their advantage. An investor could have used the market sell-off in 2022 to buy more shares, lower their cost basis, and build a larger position in the stock that would have outperformed over the past three years.
Take-Two still offers solid growth prospects. Its broad portfolio of mobile games, which make up nearly half of its bookings, and console hits like Borderlands, NBA 2K, and Grand Theft Auto position the company to capitalize on growing interest in interactive entertainment.
Analysts are currently projecting annualized earnings per share growth of 43% over the next few years, with revenue expected to nearly double to $9.3 billion by fiscal 2028. This growth is likely to lead to further market-beating returns.
