Over the last six months, Take-Two’s shares have sunk to $211.24, producing a disappointing 16.9% loss - a stark contrast to the S&P 500’s 4.2% gain. This may have investors wondering how to approach the situation.
Following the pullback, is this a buying opportunity for TTWO? Find out in our full research report, it’s free.
Why Does Take-Two Spark Debate?
Best known for its Grand Theft Auto and NBA 2K franchises, Take Two (NASDAQ: TTWO) is one of the world’s largest video game publishers.
Two Positive Attributes:
1. Projected Revenue Growth Is Remarkable
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite, though some deceleration is natural as businesses become larger.
Over the next 12 months, sell-side analysts expect Take-Two’s revenue to rise by 28%, an improvement versus This projection is eye-popping and suggests its newer products and services will fuel better top-line performance.
2. EBITDA Margin Reveals a Well-Run Organization
EBITDA is a good way of judging operating profitability for consumer internet companies because it excludes various one-time or non-cash expenses (depreciation), providing a more standardized view of the business’s profit potential.
Take-Two’s EBITDA margin has been trending up over the last 12 months and averaged 14.9% over the last two years. On top of that, its profitability was top-notch for a consumer internet business, showing it’s an well-run company with an efficient cost structure.
One Reason to be Careful:
EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Take-Two’s earnings losses deepened over the last three years as its EPS dropped annually. We’ll keep a close eye on the company as diminishing earnings could imply changing secular trends and preferences.
Final Judgment
Take-Two’s positive characteristics outweigh the negatives. With the recent decline, the stock trades at 24.7× forward EV/EBITDA (or $211.24 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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