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Why Take-Two Interactive Software, Inc. Might Keep Sliding

By Brian D. Pacampara, CFA – Feb 4, 2014 at 10:33AM

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Does this analyst make a good case? Or is it just more noise from Wall Street?

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Take-Two Interactive Software (TTWO 2.22%) plunged 11% this morning after the video game publisher's weak fourth-quarter outlook prompted a downgrade -- from outperform to neutral -- from Wedbush Securities.

So what: Along with the downgrade, analyst Michael Pachter planted a price target of $19 on the stock, pretty much exactly where it closed on Monday. While contrarians might be attracted to today's pullback, Pachter thinks investors should remain cautious given Take-Two's lack of visibility.

Now what: According to Wedbush, Take-Two's risk/reward trade-off is relatively unattractive at this point. "[A]lthough Take-Two has consistently produced successful games, it has not produced a sufficient number of them to generate consistent profits," noted Pachter. "In our view, it is impossible to model EPS without knowing the company's lineup and assigning likely revenue levels to each game."

With the stock now off about 16% from its 52-week highs, however, that short-term uncertainty might be providing patient Fools with a juicy long-term growth opportunity. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Stocks Mentioned

Take-Two Interactive Software Stock Quote
Take-Two Interactive Software
TTWO
$108.76 (2.22%) $2.36

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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