Top Gaming Pure Plays Set to Ride the Sector’s Growth Wave, Bull Market Higher
2023.12.14 10:04
- The video games sector is already strong and is set for robust growth over the next few years.
- Which are the sector’s main pure players, and which ones should you invest in?
- We will try to answer that question in this article with help from InvestingPro’s insights.
As we approach 2024, the video game sector emerges as a compelling opportunity, driven by its dynamic growth, technological advancements, and the seasonal surge in video game sales during the holiday season.
According to Statista, the sector is projected to achieve $385 billion in sales in 2023, with an anticipated average annual growth rate of 7.9% until 2027.
The widespread availability of next-generation consoles and advancements in virtual reality technology are expected to be key contributors to the sustained growth of the sector in the coming years.
So, the combination of steady market growth, technological innovation, and seasonal sales trends makes video game stocks an attractive option for investors looking to reorganize their portfolios at the end of the year.
In this article, we take a look at several video game stocks. We have deliberately focused on “pure players” in the video game sector, i.e. companies whose core business is directly related to video games, and who are most directly influenced by trends in the sector.
To this end, we’ve assembled some stocks in an InvestingPro Watchlist to compare them, notably in terms of bullish potential, according to InvestingPro fair value and analysts, and in terms of financial health, according to the InvestingPro Global Financial Health Index.
Note that the list includes Take-Two Interactive Software Inc (NASDAQ:), Nintendo (OTC:), Electronic Arts (NASDAQ:), Roblox Corp (NYSE:), UbiSoft Entertainment Inc (OTC:), Konami Corp (TYO:) and Capcom (OTC:). But here are my top three picks:
1. Ubisoft
- Bullish potential according to fair value: +33.7%
- Bullish potential according to analysts: +25.9%
- Financial health score: 1.85
The first obvious observation is that the only stock on the list considered undervalued by both InvestingPro Fair Value and analysts is Ubisoft, a French stock.
This superior bullish potential can be explained in part by the fact that the stock is “behind” its peers, given that it is the only stock on the list to post losses since the start of the year (-11.3%).
The company has suffered a number of setbacks in recent months, including a lukewarm reception for its latest blockbuster, Assassin Creed Mirage.
It’s also worth noting that this is the stock with the lowest financial health score, at 1.85. This is partly explained by the fact that the company is particularly indebted, with 45.1% of its capital according to InvestingPro data.
2. Nintendo
- Bullish potential according to fair value: +0%
- Bullish potential according to analysts: +2.1%
- Financial health score: 3.25
As far as the financial health score is concerned, it’s worth noting that the best performer on this list is Nintendo, with a score of 3.25. However, the stock’s bullish potential is virtually nil, according to analysts and fair value.
Even so, this is a stock that investors interested in the video game sector would do well to keep on their radar. It is one of the oldest video game companies, has been a leader in the sector for decades, and has often been a forerunner of new trends.
In fact, the company’s next console, currently known as Switch (NYSE:) 2, is expected to go on sale in autumn 2024, according to industry experts. This launch, as well as its anticipation, could be powerful bullish factors for the stock.
What’s more, Nintendo has begun to open up to new horizons, notably with the highly successful Mario Bros. thread in 2023, and is not expected to stop there, with some key company figures confirming that a Zelda-themed thread is in the pipeline.
Furthermore, Nintendo is the dominant market player in portable consoles with its current console, the Switch, and all indications are that it should maintain its lead in this area.
3. Electronic Arts
- Bullish potential according to fair value: +1.5%
- Bullish potential according to analysts: +5.4
- Financial health score: 3.10
As for the US companies on this list, Electronic Arts has the best profile, with almost zero bullish potential according to analysts and fair value, but a very solid financial health score of 3.10.
The company holds some of the world’s most popular licenses, from sports games (FIFA, NHL, etc.) to hit series such as The Sims, Apex Legend, Dead Space, Battlefield, Mass Effect, Need for Speed and Star Wars licensed games.
Although not the most critically acclaimed publisher for video game enthusiasts, EA games are very popular with mainstream gamers. This focus, along with the diversity of its licenses, makes it arguably one of the least risky stocks on today’s list.
Conclusion
The video games sector, which looks set for a bright future, offers a number of interesting opportunities, although at present the upside potential of pure player stocks in the sector seems limited. This means it may be preferable to wait for a better entry point.
In addition, several major technology companies, such as Microsoft (NASDAQ:), Amazon (NASDAQ:).com or Sony (TYO:) are also major players in the video games sector, and although their share prices do not depend primarily on the health of this sector, they remain interesting stocks for those seeking more moderate exposure.
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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky therefore, any investment decision and the associated risk remains with the investor.
