Take-Two Interactive Software Inc (TTWO, Financial) experienced a daily gain of 2.25%, despite a 3-month loss of -1.63%. The company also reported a Loss Per Share of 7.29. This prompts the question: is the stock modestly undervalued? This article provides a comprehensive analysis of the company's valuation and encourages readers to delve into the details.
Founded in 1993, Take-Two Interactive Software Inc (TTWO, Financial) is one of the world's largest independent video game publishers on consoles, PCs, smartphones, and tablets. Its wholly-owned labels, Rockstar Games, 2K, and Zynga, have produced well-known titles such as "Grand Theft Auto," "NBA 2K," "Civilization," "Borderlands," "Bioshock," "Xcom," and Zynga mobile titles like "Farmville," "Empires & Puzzles," and "CSR Racing." The company's current stock price is $139, with a market cap of $23.60 billion. However, its GF Value, an estimation of fair value, is $171.65, indicating that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
According to GuruFocus Value calculation, Take-Two Interactive Software (TTWO, Financial) appears to be modestly undervalued. At its current price of $139 per share, the stock seems to offer a higher long-term return than its business growth, given its relative undervaluation.These companies may deliver higher future returns at reduced risk.
Evaluating Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy its stock. Take-Two Interactive Software's cash-to-debt ratio is 0.25, which is worse than 88.58% of 569 companies in the Interactive Media industry. The company's overall financial strength is ranked 5 out of 10 by GuruFocus, indicating that its financial strength is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Take-Two Interactive Software has been profitable 7 out of the past 10 years. Over the past twelve months, the company had a revenue of $5.50 billion and a Loss Per Share of $7.29. Its operating margin is -24.08%, which ranks worse than 75.04% of 585 companies in the Interactive Media industry. Overall, the profitability of Take-Two Interactive Software is ranked 7 out of 10, indicating fair profitability.
One of the most important factors in the valuation of a company is growth. The average annual revenue growth of Take-Two Interactive Software is 7.3%, which ranks worse than 50.49% of 515 companies in the Interactive Media industry. The 3-year average EBITDA growth is -15.9%, which ranks worse than 74.68% of 387 companies in the Interactive Media industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. In the past 12 months, Take-Two Interactive Software's ROIC was -6.92 while its WACC came in at 10.8.
In conclusion, Take-Two Interactive Software (TTWO, Financial) stock appears to be modestly undervalued. The company's financial condition and profitability are fair, although its growth ranks worse than 74.68% of companies in the Interactive Media industry. To learn more about Take-Two Interactive Software stock, you can check out its 30-Year Financials here.
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