Does Take-Two Interactive Stock Have Room For Growth?

Despite a 32% rise in Take-Two Interactive stock (NASDAQ
NDAQ
: TTWO) this year, outperforming the broader S&P500 index, which is up 12%, we believe it has more room for growth. However, looking at a slightly longer term, TTWO stock is down 34% from levels seen in late 2020. This can be attributed to 1. the company’s P/S ratio falling a significant 43% to 4.4x trailing revenues, 2. a 49% rise in its average total shares outstanding to 169 million, partly offset by 3. Take-Two Interactive’s revenue growth of 73% to $5.3 billion over the last twelve months. Our dashboard on Why Take-Two Interactive Stock Moved has more details.

Take-Two Interactive’s significant revenue growth can be attributed to its last year acquisition of Zynga, which has been seeing a steady rise in revenue over the past few years, led by its popular mobile gaming franchises, including Merge Dragons and Empires & Puzzles. Take-Two Interactive’s big franchises, including Grand Theft Auto and NBA2K, have also been doing well. The company is expected to see a rise in sales driven by the continued expansion of Zynga’s games and the much-awaited launch of Grand Theft Auto 6, likely to be released next year. Take-Two Interactive’s revenue rose 53% y-o-y in fiscal 2023 (the fiscal ends in March). After a relatively calm fiscal 2024 (likely), sales are expected to surge 45% (per the consensus estimates) to over $8 billion in fiscal 2025, owing to the GTA 6 release. These numbers may optically appear to be high, but they make sense, given the popularity of this franchise. For perspective, GTA 5 has sold 180 million copies since its release in 2013, garnering close to $8 billion thus far. The new game in the franchise is likely to surpass this figure in fewer years.

Although the company has been able to grow its sales, its operating margin has contracted to -22% in fiscal 2023, vs. 14% in 2020, due to higher marketing costs and some one-off costs related to the Zynga acquisition. Our Take-Two Interactive Operating Income Comparison dashboard has more details.

Looking at its stock price, we believe TTWO stock has more room for growth. At its current levels of $138, it is trading at 4.4x trailing twelve months revenue, compared to its last five-year average of 8.6x, implying it is undervalued. Our Take-Two Interactive Valuation Ratios Comparison dashboard offers more details.

While TTWO stock may see higher levels, the Covid-19 crisis has created many pricing discontinuities, which can offer attractive trading opportunities. For example, you’ll be surprised by the counter-intuitive stock valuation for Take-Two Interactive vs. Microsoft
MSFT
.

What if you’re looking for a more balanced portfolio instead? Here’s a high-quality portfolio that’s beaten the market consistently since 2016.

Invest with Trefis Market Beating Portfolios

See all Trefis Price Estimates