Stock Analysis & Ideas

Take-Two Stock: Significant Catalysts Ahead?

Shares of video-game developer Take-Two Interactive Software (TTWO) were dragged lower amid the rocky start to 2022.

With a robust third-quarter of earnings in the books and a big release in Grant Theft Auto IV that could land sooner rather than later, TTWO stock seems like one of few safe tech stocks to pick up amid the wreckage.

While TTWO may still be a tad frothy at over 33 times trailing earnings and over five times sales, one can’t help but notice that the firm has a lot of potential catalysts that could kick in over the medium term.

It’s not just the next blockbuster in GTA VI that should have investors excited. I’m bullish.

Industry Consolidation

The gaming field has seen a lot of consolidation activity over the past year. Take-Two partook in the recent industry-wide M&A spree, acquiring mobile-game powerhouse Zynga in a $12.7-billion deal expected to close in Take-Two’s fiscal first quarter. Such a rampant pace of M&A could continue as innovators look to expand their service offerings.

Two-Take itself seems like a prime acquisition target for one of the many big tech firms eagerly looking to make a splash in the red-hot gaming space. With Activision Blizzard now off the market, a larger scarcity premium may be warranted on shares of Take-Two.

After a modest quarterly beat, I view the recent slip in the stock as more of an opportunity for the patient.

Further, there could be a lot to look forward to over the next three years, as the firm nears a major release cycle. For that reason, I believe TTWO stock is worth a hefty premium, perhaps a greater premium than is attached to the stock today.

A Major Multi-Year Catalyst

Take-Two has been hard at work behind the scenes on its next big blockbuster in GTA VI.

The much-anticipated sixth major title in the franchise has been clouded in secrecy for years. These days, it’s hard not to get enthused by the many reports that suggest the title could launch as early as the second quarter of 2024.

According to journalist Chris Klippel, Rockstar has hit an “important step” in the development process, adding a bit of credibility to the rumored release schedule.

Although two years (or more) is a long time to wait, the stock is likely to rally ahead of the launch as more news slowly trickles in. The odds that GTA VI is a blockbuster success are high, given Take-Two’s reputation for delivering polished games that keep users engaged for many years.

Take-Two stock is one of those plays that could go to sleep for many years before its next needle-moving title. Even if GTA VI isn’t yet ready to hit until late-2024 or early-2025, the significant catalyst still seems like more than enough reason to buy shares with the intent of just forgetting about them until more light is shed on what’s sure to be a triple-A hit.

Undoubtedly, GTA is a franchise with staying power. To this day, GTA V continues to be a hot seller, with around 5 million in sales as of the latest quarter. Such unprecedented strength is a testament to the power the firm has in its gaming franchises.

Wall Street’s Take

According to TipRanks’ rating consensus, TTWO stock comes in as a Strong Buy. Out of 16 analyst ratings, there are 14 Buy recommendations and two Hold recommendations.

The average Take-Two Interactive price target is $207.13, implying 35.1% upside potential. Analyst price targets range from a low of $170 per share to a high of $232 per share.

Bottom Line on TTWO Stock

GTA VI is coming, but nobody knows when. For long-term investors, exact details shouldn’t matter. Should GTA VI arrive later rather than sooner, the company still has many other growth drivers like the NBA 2K series to keep the ball rolling forward.

Take-Two has been doing well without such a massive launch. The solid third-quarter beat against tougher year-over-year comparables alone should have given some lift to the stock.

As shares bounce off their 52-week lows, contrarians may wish to step in, as the damage done to the stock seems overblown.

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