When investors think of growth stocks, they usually imagine high P/E ratios, bullish momentum, and a catalyst that will push the stock even higher. It also means that in order to finance this exponential growth, these companies tend to rely on debt instruments such as loans and other interest-carrying obligations.
So when a company comes along with no long-term debt and is able to post double-digit growth, investors should pay close attention.
This high-powered tech stock may have the secret to steady profits while keeping their long-term debt close to zero.
A Best-In-Breed Software Company That’s on the Rise
Take-Two Interactive Software (TTWO) is a $15 billion multimedia software conglomerate known for its best-selling video game labels such as Civilization, Grand Theft Auto, NBA 2K, and more.
Two labels fall under the Take-Two umbrella: Rockstar Games and 2K. Collectively, these two labels propel TTWO into the number three spot for the largest gaming company in the US and Europe.
The company reported a stunning first-quarter beat of $0.27 per share compared to the average analyst estimate of just $0.03 per share. Net revenues were similarly impressive – up 39.3% year-over-year.
Management issued new guidance following the earnings report, projecting full-year EPS between $3.71 to $3.96 per share.
One of the best-selling game titles of all time, Grand Theft Auto, is slated for an upgrade in FY 2022. Also, add-on content from current games is still a robust business, accounting for 56% of the company’s revenues. As gaming popularity grows, Take-Two has the pedigree and consumer market share to meet heightened demand.
It seems that Wall Street hasn’t quite caught on to the company’s potential yet. BofA/Merrill reiterated its “buy” recommendation for Take-Two Interactive with a price target range between $133 and $144 per share in August. However, it won’t be long before others figure out this stock’s value.
Fundamental Analysis for TTWO
The stock trades right about in line with the industry average at 26 times earnings compared to 30 times earnings. Coupled with the double-digit EPS growth estimates for the stock, that gives it a PEG ratio of well under 2 – a strong undervalued sign for investors.
Impressively, the company carries no long-term debt liabilities. With $984 million in cash and cash equivalents, Take-Two should be able to adapt to fast-changing market conditions.
Technical Analysis for TTWO
Taking a look at the stock chart, we can see the stock has been trending steadily higher since April.
When you look at the trendline against the 15-day SMA, you see that TTWO is trading right at the support level. This setup could indicate that the stock could be ready to rise even higher over the next week or two.
The Bottom Line
Based on Take-Two’s full-year EPS estimates, a conservative fair value would be $150 per share – 13% over current market value.
At its current price point, investors have an opportunity to pick up a growth stock with a strong catalyst and high maneuverability in a volatile market at a discount.
Going forward, Take-Two is well-positioned to generate solid gains for investors regardless of which direction the markets turn.
The above analysis of TTWO was provided by Daniel Cross, professional trader and financial writer.
What Does MarketClub Say About TTWO?
MarketClub’s full analysis indicates that the TTWO is fighting bullish momentum. With a rating of only -70, this stock is struggling to move in the confines of its longer-term trend.
Long-term members have been holding a long position since 5/15 at $109. Since entering, TTWO has jumped 14.8%. These members will look for an exit signal indicating a full trend reversal.
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