It could be game on for investors seeking value among select growth stocks because the video game industry is home to several names with attractive valuations.
That could shine a light on exchange traded funds such as the VanEck Video Gaming and eSports ETF (NASDAQ: ESPO). After a rough spell for video game equities in 2022, ESPO is on the mend, as highlighted by a year-to-date gain of 12.53%. More could be in store if more investors embrace those alluring multiples and as the industry sheds its “pandemic play” status.
ESPO follows the MVIS Global Video Gaming and eSports Index and is home to 26 stocks, several of which fit the bill as undervalued. Those include Nintendo (OTC:NTDOY) and Roblox (NYSE:RBLX). Those are ESPO’s sixth- and seventh-largest holdings, respectively, combining for nearly 10% of the ETF’s roster.
“While Roblox’s platform is a unique offering, the firm still competes with video game publishers both to attract new users and to hold on to their current players as they grow older. A key driver to the firm’s long-term growth will be keeping younger users as they age into and out of their teen years, as over two thirds of users are under the age of 17 and around half are under 13 years old,” noted Morningstar analyst Neil Macker.
Another name that is viewed as trading at notable discounts is Take-Two Interactive Software (NASDAQ:TTWO), which is the producer of the famed Grand Theft Auto franchise. There’s more to the Take-Two portfolio than GTA, including Borderlands and the company’s acquisition of social games producer Zynga. The stock accounts for 4.5% of ESPO’s roster.
“Take-Two has capitalized on the shift within the industry toward a bifurcated market consisting of major AAA blockbuster titles on one side and smaller independent games on the other. Take-Two generally focuses on the higher end, using its capital to fund the higher-budget blockbusters and its marketing advantage over independents in terms of both budget and established networks to support its titles,” added Macker.
Activision Blizzard (NASDAQ:ATVI), the company behind the Call of Duty and World of Warcraft franchises, is also trading at a discount today. That name is ESPO’s fifth-largest holding at a weight of 5.78%.
“Like its peers, the firm is focused on engaging users beyond the initial game sale via extending the monetization window by expanding the use of multiplayer options and releasing downloadable content. Both methods encourage gamers to hold on to the original game longer than in previous generations and provide an income stream from consumers who purchase the game secondhand,” concluded Macker.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.