What to Make of Activision Blizzard’s Recent Dips

I’m bullish Activision Blizzard (ATVI). The stock has sunk 17% over the past three months, and getting in on beaten-down stocks is an excellent swing-trading strategy.

Activision Blizzard is a leading American gaming company. The gaming industry is expected to grow at a CAGR of 9.64% through 2026, to $314.40 billion.

ATVI is currently trading at 23% below its 52-week high of $104.53, suggesting that this could be a good window to take a closer look at the stock. (See Activision stock charts on TipRanks).

ATVI Is Undervalued

Value investors should appreciate it that the forward P/E valuation of ATVI is only 18.2x. This is lower than Take-Two Interactive’s (TTWO) 23.2x, and Electronic Arts’ (EA) 19.7. Value investors can exploit this asymmetrical bias against Activision.

Don’t Worry about China

People overreacted to China’s restriction on video game playtime for minors. Investors forgot that the Asia-Pacific contributed only $972 million to ATVI’s 2020 revenue of $8.1 billion.

ATVI’s Stochastic Oscillator score of 29.87 is getting closer and closer to the Stochastic Oversold territory score of 20 and below, suggesting that perhaps investors are being overly cautious.

Activision Remains a Growth Stock

Growth potential is the No. 1 factor when evaluating stocks. Based on the chart below, ATVI deserves more love from investors. Its forward EBITDA is 25.88%, while its forward revenue CAGR is 15.44%. Any company that has these growth metrics can be categorized as a high-growth investment.

(Source: Motek Moyen)

Investors should be more bullish on ATVI. Its King Digital mobile games subsidiary touts increasing quarter-over-quarter revenue. For Q2 2021, King Digital’s free-to-play games generated revenue of $635 million. This is notably higher than Q2 2019’s $533 million.

King’s mobile games contributed almost one-third of Activision Blizzard’s recently quarterly revenue of $1.93 billion. Mobile gaming is the growth driver of the video games industry.

Activision Blizzard touts a net operating cash flow of $2.57 billion. This amount could cover interest payments on ATVI’s total debt of $3.6 billion. ATVI’s total cash position of $9.63 billion could also let it make acquisitions.

Wall Street’s Take

Wall Street analysts consider Activision a Strong Buy, based on 15 Buys and two Holds. The average ATVI price target is $114.25, implying 42.8% upside potential.

Conclusion

Activision Blizzard has better growth and profitability stats than Take-Two Interactive and Electronic Arts, its main rivals.

The company’s undervaluation relative to its peers makes it an attractive long-term investment, if you want to invest in the growing gaming industry.

Disclosure: At the time of publication, Motek Moyen did not have a position in any of the securities mentioned in this article.

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