Shares of Take-Two Interactive Software (NASDAQ:TTWO) are gapping up after the company reported earnings that exceeded expectations on the top and bottom lines. TTWO stock is up nearly 15% in the last five trading sessions.
Investors may be wondering if there’s any gas left in the tank for the maker of the wildly popular “Grand Theft Auto” video game franchise. The fact is the easiest gains may be gone, but the stock still has a good chance of moving higher.
Over the past five years, the company has been showing strong growth on the top and bottom lines. This growth only accelerated during the pandemic when millions of consumers turned or returned to video games as an essential form of entertainment.
However, the company’s growth has been slowing over the past couple of years. And there’s some concern that 2021 will be a drastic drop in growth from prior years. The company didn’t do anything to dispel that thought during the earnings call. Although the company was optimistic about their long-term growth, their fiscal 2022 year guidance came in below expectations.
This is one reason why TTWO stock initially dropped after the earnings report.
Investors Can Take a Cue From Gamers
That concern may be overstated. The company is well seeded within the gaming community and is benefiting from the recurring consumer revenue it is receiving in increasing amounts. In the quarter just ended, Take-Two reported recurrent consumer spending growth of 48% which made up 63% of the company’s total net bookings for the past fiscal year.
The heart and soul for Take-Two is the Grand Theft Auto label that is part of its Rockstar Games subsidiary. Fans of the cultish game are eagerly awaiting GTA6. However it seems that they will have to wait until late 2023 at the earliest. The company didn’t provide additional guidance regarding the release date on its earnings call.
That shouldn’t be too concerning as it relates to TTWO stock. The company has a stable of games from its NBA2K and WWE2K franchises that issue annual updates. Nevertheless, it will be a lean year for new offerings. To illustrate that point, the company announced that while it is once again working with the National Football League, no games will be issued in FY 2022.
But the secret sauce for Take-Two over many years has been its commitment to long development cycles. This is frustrating to gamers, but they’ve learned to appreciate the company’s commitment to putting out games when they are ready to be released and not a moment before.
TTWO bears may say that the company’s reputation could turn sour if the company disappoints on the next release of GM6 or any other game for that matter. But Take-Two has built a considerable amount of brand equity.
Should You Take a Ride With TTWO Stock?
While the outlook for TTWO stock is bullish, TTWO stock may have a hard time getting back to its 52-week high. However, it does appear that the stock has more room to run.
The company’s price-to-earnings (P/E) ratio remains higher than competitors such as Electronic Arts (NASDAQ:EA) and Activision Blizzard (NASDAQ:ATVI). But it’s price-to-sales ratio is at a discount to both stocks. But there are very few fundamental concerns with the company as long as it continues to grow earnings and revenue.
From a technical standpoint, it’s not clear if the bulls are firmly in control. Options traders can look for support and resistance points to enter positions. There are two support zones forming. One is in an area ranging from about $169 to $171; the other is in a range of $161.60 to $163. Long-term investors should use any dip below $180 as an opportunity to add to their position.