Use Dip To Buy Red-Hot Take-Two Interactive Software Inc
As the tech sector has slid recently, red-hot Take-Two Interactive Software Inc (NASDAQ:TTWO) stock has been punished.
TTWO stock has fallen from a near $120 high to just over $100 in a few days. That is a pretty big sell-off that wiped out essentially all of the stock’s gains from the prior 2 months.
Alongside the rest of the tech sector, TTWO stock is rebounding some. TTWO stock now trades near $108. But it’s still far from its recent $120 highs.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
Does that mean that this rebound in TTWO stock will continue? I think so. Here’s why.
Tech Is In Rebound Mode
Tech names were beaten up last week and early this week as a rotational trade gripped the markets. With tax reform, strong retail earnings, and positive Black Friday numbers in focus, investors ditched the hyper-growth tech beauties which have led the market for so long in favor of more traditional value investments.
In other words, TTWO stock sold off in dramatic fashion without anything being wrong with the fundamental growth narrative. Same with other hyper-growth tech names.
But these growth narratives are really, really strong. After all, there is a reason many of these hyper-growth stocks have continued to roar higher for so long. At most of these companies, growth simply isn’t slowing, nor is it showing any signs of slowing any time soon.
Consequently, I’ve been buying this big dip in tech, including gobbling up Alphabet Inc (NASDAQ:GOOG, NASDAQ:GOOGL), Amazon.com, Inc. (NASDAQ:AMZN), Facebook Inc (NASDAQ:FB), Alibaba Group Holding Ltd (NYSE:BABA), and Netflix, Inc. (NASDAQ:NFLX), among others.
Add TTWO stock to that list.
TTWO Stock Is In Rebound Mode
TTWO stock has long been one of my favorites in the tech sector.
Towards the end of May, I said TTWO stock was a buy based on its robust, unparalleled content portfolio in the video game industry. That portfolio, which includes names like Grand Theft Auto, Red Dead, NBA 2K, WWE 2K, and Civilization, sets the company up to succeed in a long-term window.
That buy thesis remains largely unchanged today. A strong content portfolio isn’t a near-term tailwind: It’s a long-term tailwind. TTWO can continue to pump out GTA, Red Dead, and NBA 2K sequels into perpetuity and, as long as each iteration offers some unique value prop, demand won’t lessen.
Don’t believe me? Just look at the data.
The first game in the Grand Theft Auto series was released in 1997. Twenty years later, Grand Theft Auto V is the best-selling video of all-time, both in terms of revenue and units sold.
The first NBA 2K game was released in 1999 (published by Sega.) Eighteen years later, NBA 2K17 is Take-Two’s highest-selling sports title ever, while NBA 2K18 is expected to perform even better than NBA 2K17.
Fans simply don’t bore of these titles. Demand remains robust for every sequel.
TTWO Stock Valuation
Consequently, TTWO is a buy and hold so long as the valuation remains reasonable.
Today, the valuation on TTWO stock is very reasonable. TTWO stock is expected to grow earnings around 22% per year over the next two years, but the stock only trades at 34.8x this year’s earnings estimate. That means TTWO stock is trading at a mere 60% premium to its growth prospects.
The S&P 500, meanwhile, trades at a 100% premium to its growth prospects (20x this year’s earnings for about 10% growth).
Clearly, the recent dip in TTWO has plunged the stock into materially undervalued territory.
Bottom Line on TTWO Stock
Hyper-growth tech names will rebound from this recent sell-off. This is a “buy the dip” opportunity in many different stocks.
One stock that looks particularly attractive here is TTWO, given its robust growth narrative and cheap valuation.
I continue to believe TTWO stock is a hold into 2019, which is expected to be a banner year for the company with multiple big game launches.
As of this writing, Luke Lango was long TTWO, GOOG, AMZN, FB, BABA, and NFLX.
More From InvestorPlace
The post Use Dip To Buy Red-Hot Take-Two Interactive Software Inc appeared first on InvestorPlace.
