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Graham Griffin
Graham Griffin
Articles (44) 

Video Game Studios Seeing Steady Growth

Upcoming titles are helping to drive 52-week highs

GuruFocus notes that four video game stocks are currently trading within 10% of their 52-week highs. Companies include CD Projekt SA (OTGLY), Capcom Co. Ltd. (CCOEY), Activision Blizzard Inc. (NASDAQ:ATVI) and Square Enix Holdings Co. Ltd. (SQNXF).

Interactive Media companies rank eighth overall on GuruFocus' list of industries nearing 52-week highs. Forerunner industries include Software, Asset Management, Diversified Financial Services, Biotechnology, Industrial Products, Consumer Packaged Goods and Hardware.

CD Projekt

As of June 19, CD Projekt was trading 110.63% above its 52-week low of $12.32. The company is currently trading at $25.95 with a market cap of $9.98 billion. According to the Peter Lynch chart, the company was trading slightly above its intrinsic value in 2019.

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CD Projekt is the holding company of CD Projekt capital group. The company and its subsidiary develops and publishes videogames for hardware platforms such as Steam, PlayStation Store, Xbox Games Store, Nintendo, App Store, Humble Bundle, Origin and its own proprietary GOG.com platform. It is also involved in global digital videogame distribution. The company has CD Projekt Red and GOG.com segments. It derives the majority of its revenues from the CD project Red segment.

GuruFocus gives the company a financial strength rating of 9 out of 10, a profitability rank of 9 out of 10 and a valuation rank of 1 out of 10. The company currently boasts zero debt and has an operating and net margin percentages that beat 94% of the industry.

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The holding company's development studio currently has one of the most anticipated games of the year in the works. "Cyberpunk 2077" was originally announced during the E3 video games conference and featured famous actor Keanu Reeves. The game's release has been delayed until November, but high levels of interest will likely boost profits for the company.

Capcom

June 19 saw Capcom sitting 89.78% above its 52-week low of $9.59. The company was trading at $18.20 with a market cap of $3.89 billion. According to the Peter Lynch chart, the company was trading close to its intrinsic value and has been fairly valued in recent years.

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Capcom is a Japanese company that produces and sells videogame software, online games, mobile games and operates amusement facilities. The company has operations in Japan, North America, Europe, Asia and several emerging markets. The majority of its revenue is split fairly evenly between Japan, Asia, North America and Europe. Capcom's segments include digital contents, arcade operations, amusement equipment and other businesses. The company derives the vast majority of its revenue from its digital contents segment. Some of the company's notable games include "Resident Evil," "Street Fighter," "Monster Hunter" and "Mega Man."

GuruFocus gives the company a financial strength rating of 9 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 2 out of 10. The copmany's cash-to-debt ratio of 8.14 beats 58.24% of the industry and the Altman Z-Score of 10.47 places it well into the safe zone from bankruptcy.

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Capcom has seen success this year already with the remake of its popular game, "Resident Evil 3." The company is also rumored to be working on a new game in the "Resident Evil" series that should drive additional profits at the end of 2020.

Activision Blizzard

Activision Blizzard saw its per-share prices soar to 81.67% above the 52-week low of $41.84 on June 19. The company was trading at $76.01 with a market cap of $58.56 billion. The company has been trading close to fair value since 2011 according to the Peter Lynch chart.

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Activision Blizzard was formed in 2008 by the merger of Activision, one of the largest console video game publishers, and Blizzard, one of largest PC video game publishers. The combined company remains one of the world's largest video game publishers. Activision's impressive franchise portfolio includes "World of Warcraft," which boasts more than $8 billion of lifetime sales, and "Call of Duty," which has sold over 175 million copies across over a dozen titles.

GuruFocus gives the company a financial strength rating of 7 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. Over the last several years, the company has significantly reduced the amount of debt that it has while also increasing revenue levels. Currently, the weighted average cost of capital is outweighed by the return on invested capital, indicating positive returns moving into the future.

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The Blizzard studio announced last year that it has an update to its wildly popular "Overwatch" game in the works for 2020. The game has seen massive interest levels thanks to its player base of 40 million in 2018. Activision is also working on another game in its "Call of Duty" series with recently leaked photos of the game peaking the interest of longtime fans. Both games have the potential to sell millions of copies upon release.

Square Enix

As of June 19, the company's price per share was sitting 73.10% above its 52-week low of $31. The company was trading at $53.66 with a market cap of $6.26 billion. The Peter Lynch chart indicates the stoc has been trading near its fair value since 2013.

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Square Enix is a Japanese holding company that is involved with entertainment content and services. The company's segments include digital entertainment, amusement, publication and merchandising. Square Enix derives the majority of its revenue from its digital entertainment operations.

GuruFocus gives the company a financial strength rating of 9 out of 10 and a profitability rank of 8 out of 10. The company is also able to boast zero debt with strong financials and profitability across the board. The company has seen positive cash flow since having difficulties in 2013.

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The company has seen massive success in the past with its "Final Fantasy" series and maintains a consistent player base across the "Final Fantasy XIV" online title. The company has a new title in its "Nier" series that should draw return players as well as a "Marvel's Avengers" title pending release that should draw in crowds from the movie's fanbase.

Next generation consoles

For the coming holiday season of this year, October through December, gaming powerhouses Microsoft (NASDAQ:MSFT) and Sony (NYSE:SNE) both have planned the release of their next generation consoles. The two systems are both advertised to rival current computer abilities and are hoping to draw from that player base.

For the most part, current development from these game development studios is focused on current generation consoles. This allows them to continue to draw from their existing player bases and avoid the development of better graphics and optimized games.

With the release of the next generation consoles later this year, all of these studios will be forced to pivot their existing benchmarks for the new systems. Without the ability to pivot to supporting the new technology, these companies will likely see their player base fade alongside their profits.

Disclaimer: Author owns no stocks mentioned.

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Rating: 5.0/5 (2 votes)

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Comments

kevin77
Kevin77 - 2 weeks ago    Report SPAM

well said and researched. Pandemic has increased demands of gaming even more and it will keep growing as per cmadroit.

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