Take-Two and Grand Theft Auto: Buy or Sell?

Gamers are anxiously awaiting the next release of Grand Theft Auto, but what about the company's investors?

The stock market often reacts ahead of events, discounting or adding a premium for what it expects in the near future. Take-Two Interactive’s (TTWO) stock price is no exception. The company is set to release Grand Theft Auto 5 on September 17, 2013. The stock is up an incredible 86% from its yearly low, and just 4.6% from the $19.25 reached in late August. 

Expectations high

Analysts have high expectations for Grand Theft Auto. The franchise sold more than 125 million times, so when a new version of the game is released, there is a good chance that initial sales will be very strong. For the week ending August 24, 2013, pre-orders for the game on Xbox 360 were 1.48 million, and 962,800 on the PS3.

Analysts have a consensus earnings estimate of $2.51 per share for the fiscal year ending March 2014. For fiscal 2015, the estimate is much lower: $1.03 per share.

Other investing ideas

The run-up in Take-Two could fall victim to “selling on fact.” This means investors could sell the shares after Grand Theft Auto is released. And there are few alternative gaming stocks available at a discount. Electronic Arts (EA) is up more than 100% over a 1 year period. Activision Blizzard (ATVI) is up nearly 50%.

Click on the image below to see analyst ratings over time. Sourced from Zacks Investment Research. 

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Activision relies heavily on Call of Duty for revenue growth. The company recently took on debt to buy back Vivendi’s (VIVHY) ownership in Activision. This ends the control Vivendi had over the company.

EA is up because investors like the company’s 'freemium' model on the smartphone platform. Its Plants vs. Zombies 2 was downloaded nearly 25 million times, outpacing the total downloads made for its original release. This release is free, and EA wants to make money through in-app sales.

Bottom line

Investors who missed the run-up in Take-Two might want to wait until after Grand Theft Auto 5 is released. There could be chance of a bumpy launch when the title is released, although this is unlikely. The bigger risk is that investors will book profits ahead of the release day. There is no doubt that the game will be a success, so waiting a few days after September 17 could offer a better entry point in shares of Take-Two Interactive.

Do you think Take-Two is worth a closer look? Use the list below as a starting point for your own analysis. 

1. Take-Two Interactive Software Inc. (TTWO, Earnings, Analysts, Financials): Develops, and distributes interactive entertainment software, hardware, and accessories worldwide. Market cap at $1.62B, most recent closing price at $18.65.

 

 

2. Electronic Arts Inc. (EA, Earnings, Analysts, Financials): Develops, markets, publishes, and distributes game software and content for video game consoles, personal computers, mobile phones, tablets and electronic readers, hand held game players, and the Internet. Market cap at $8.32B, most recent closing price at $27.36.

 

 

3. Activision Blizzard, Inc. (ATVI, Earnings, Analysts, Financials): Publishes online, personal computer (PC), console, handheld, and mobile games of interactive entertainment worldwide. Market cap at $18.98B, most recent closing price at $16.98.

 

 

(List compiled by Chris Lao, a Kapitall writer. All financial information sourced from Finviz).

 

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