Take-Two Interactive Software Inc (TTWO, Financial) recently experienced a daily gain of 2.61%, despite a 3-month loss of 7.72%. The company's Loss Per Share stands at 7.29. With these figures in mind, we ask: is the stock modestly undervalued? In this article, we delve into a detailed valuation analysis of TTWO, providing valuable insights for potential investors.
Introducing Take-Two Interactive Software Inc
Founded in 1993, Take-Two Interactive Software Inc is a leading independent video game publisher. The company operates through three wholly-owned labels: Rockstar Games, 2K, and Zynga. Their portfolio includes popular titles like "Grand Theft Auto," "NBA 2K," "Civilization," "Borderlands," "Bioshock," "Xcom," "Farmville," "Empires & Puzzles," and "CSR Racing." With a current stock price of $143.94 and a market cap of $24.40 billion, the company's value compared to its GF Value of $171.14 suggests that the stock may be modestly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the 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. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on this analysis, TTWO stock appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with poor financial strength can pose a higher risk of permanent loss of capital. Therefore, it's crucial to evaluate the financial strength of a company before purchasing its stock. Take-Two Interactive Software's cash-to-debt ratio stands at 0.25, which is lower than 89.26% of companies in the Interactive Media industry. This indicates fair financial strength, with a GuruFocus ranking of 5 out of 10.
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, with a revenue of $5.50 billion over the past twelve months. However, its operating margin of -24.08% ranks worse than 75.34% of companies in the Interactive Media industry, indicating fair profitability.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth of Take-Two Interactive Software is 7.3%, which ranks lower than 51.06% of companies in the Interactive Media industry. The 3-year average EBITDA growth rate is -15.9%, ranking lower than 74.87% of companies in the industry. This suggests fair growth.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, TTWO's ROIC was -6.92 while its WACC was 11.25.
Conclusion
In conclusion, Take-Two Interactive Software's stock appears to be modestly undervalued. The company has fair financial strength and profitability, but its growth ranks lower than most companies in the Interactive Media industry. For more details on TTWO's financials, check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
