I’m bullish Activision Blizzard (NASDAQ:). The stock has sunk 17% over the past three months, and getting in on beaten-down stocks is an excellent swing-trading strategy.
Activision Blizzard is a leading American gaming company. The gaming industry is expected to grow at a CAGR of 9.64% through 2026, to $314.40 billion.
ATVI is currently trading at 23% below its 52-week high of $104.53, suggesting that this could be a good window to take a closer look at the stock. (See Activision stock charts on TipRanks).
ATVI Is Undervalued
Value investors should appreciate it that the forward P/E valuation of ATVI is only 18.2x. This is lower than Take-Two Interactive’s (NASDAQ:) 23.2x, and Electronic Arts’ (EA) 19.7. Value investors can exploit this asymmetrical bias against Activision.
Don’t Worry about China
People overreacted to China’s restriction on video game playtime for minors. Investors forgot that the Asia-Pacific contributed only $972 million to ATVI’s 2020 revenue of $8.1 billion.
ATVI’s Stochastic Oscillator score of 29.87 is getting closer and closer to the Stochastic Oversold territory score of 20 and below, suggesting that perhaps investors are being overly cautious.
Activision Remains a Growth Stock
Growth potential is the No. 1 factor when evaluating stocks. Based on the chart below, ATVI deserves more love from investors. Its forward EBITDA is 25.88%, while its forward revenue CAGR is 15.44%. Any company that has these growth metrics can be categorized as a high-growth investment.
(Source: Motek Moyen)
Investors should be more bullish on ATVI. Its King Digital mobile games subsidiary touts increasing quarter-over-quarter revenue. For Q2 2021, King Digital’s free-to-play games generated revenue of $635 million. This is notably higher than Q2 2019’s $533 million.
King’s mobile games contributed almost one-third of Activision Blizzard’s recently quarterly revenue of $1.93 billion. Mobile gaming is the growth driver of the video games industry.
Activision Blizzard touts a net operating cash flow of $2.57 billion. This amount could cover interest payments on ATVI’s total debt of $3.6 billion. ATVI’s total cash position of $9.63 billion could also let it make acquisitions.
Wall Street’s Take
Wall Street analysts consider Activision a Strong Buy, based on 15 Buys and two Holds. The average ATVI price target is $114.25, implying 42.8% upside potential.
Activision Blizzard has better growth and profitability stats than Take-Two Interactive and Electronic Arts (NASDAQ:), its main rivals.
The company’s undervaluation relative to its peers makes it an attractive long-term investment, if you want to invest in the growing gaming industry.
Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.
Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.
Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.