(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Take-Two Interactive Software, Inc. (TTWO) shares could rebound by at least 20 percent as sales of e-sport video games soar. The popularity of these video games, which are played competitively for fans to watch, could push the stock back to record highs. If this happens, Take-Two would recoup its entire decline this year, which was fueled both by the market downdraft and earnings that missed estimates in February.
The optimism comes, first, from options traders. The options market is betting that shares could rise by over 20 percent to $122, by June. Meanwhile, analysts are looking for the stock to increase even more over the next year, by 27 percent to $128.70 a share, according to data from Ycharts. Despite the most recent earnings miss, the positive outlook comes as investors focus on Take-Two's strong earnings growth outlook. Earnings per share are expected to climb by nearly 52 percent in 2019 to $4.98 per share, while revenue grows by 42.5 percent to $2.859 billion.
A Rise to $122
The options set to expire on June 15 are looking for the stock to rise to roughly $122. The $120 call options have the most significant open interest for the month, with nearly 4,000 contracts. They trade at price of about $1.80 per contract, and that means the stock would need to rise above $122 for the options to break even.
Analysts Are More Bullish
Analysts have been boosting their price target over the past six months. Of the 22 analysts that cover the stock, nearly 77 percent rate the stock a "buy" or "outperform."
TTWO Price Target data by YCharts
The optimism comes as investors see big growth in e-sports. Statista estimates that e-sports industry revenue will more than double to $1.65 billion in 2021 from $655 million in 2017. Those forecasts are contributing to revenue estimates for Take-Two that are seen rising by more than 42 percent in 2019 to $2.85 billion, while earnings are expected to climb by 52 percent to $4.98 per share. With the stock presently around $101, it is trading at only at 20 times 2019 earnings estimates, a reasonably cheap multiple given the growth outlook.
TTWO EPS Estimates for Next Fiscal Year data by YCharts
Bottom In Place?
The technical setup doesn't presently show that shares are poised to rise, but it does show that stock has a stable support level around $100. Meanwhile, the relative strength index is near oversold levels, suggesting the stocks recent downturn may soon be behind it.
So whether Take-Two sees big stock gains may hinge the company meeting analysts' bullish earnings and revenue forecasts. If it does, then Take-Two's investors - along with options traders - may be the true winners of the growing popularity of e-sports.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.