Tuesday, October 29, 2013 8:55:32 AM
TTWO,...
Video game sales tracker NPD Group recently released its retail numbers for the month of September.
Industry sales were up 27% year-over-year largely thanks to the blockbuster performance of Grand Theft Auto 5 from Take-Two Interactive (NASDAQ: TTWO).
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Take-Two Interactive Software, Inc
TTWO is the brains behind the hit franchise Grand Theft Auto. The company has annual sales of $1.43b and trades with a price to sales ration of 1.27. TTWO beat the sales record that ATVI has held for the last couple of years with its Grand Theft Auto taking in $1b in sales in three days.
The chart below shows the differing stock price we would obtain if TTWO were to trade at the same multiple as EA and ATVI. EA trades at 1.8 times sales and ATVI trades at 3.04. Using these multiples we obtain a $24.03 and $32.68 target, 39% and 89% above the current stock price. This is based on a simple price to sales multiple but it one that we find can be very usual is looking for undervalued plays in a sector that has few players. There is always a clear leader in such a sector so the more conservative 1.8 times multiple may the better choice. The one negative we see on TTWO is its debt load of $576m. Granted the company is generating positive cash flow and has a cash balance of $646m. Still, high debt loads are not something we view positively. TTWO also has the highest PE in the sector at 76. However, if we assume that TTWO with its successful continuation of its Grand Theft franchise is about to take the leadership role away from ATVI. we can overlook this and assign it the higher ATVI price multiple.
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Video game sales tracker NPD Group recently released its retail numbers for the month of September.
Industry sales were up 27% year-over-year largely thanks to the blockbuster performance of Grand Theft Auto 5 from Take-Two Interactive (NASDAQ: TTWO).
====================
Take-Two Interactive Software, Inc
TTWO is the brains behind the hit franchise Grand Theft Auto. The company has annual sales of $1.43b and trades with a price to sales ration of 1.27. TTWO beat the sales record that ATVI has held for the last couple of years with its Grand Theft Auto taking in $1b in sales in three days.
The chart below shows the differing stock price we would obtain if TTWO were to trade at the same multiple as EA and ATVI. EA trades at 1.8 times sales and ATVI trades at 3.04. Using these multiples we obtain a $24.03 and $32.68 target, 39% and 89% above the current stock price. This is based on a simple price to sales multiple but it one that we find can be very usual is looking for undervalued plays in a sector that has few players. There is always a clear leader in such a sector so the more conservative 1.8 times multiple may the better choice. The one negative we see on TTWO is its debt load of $576m. Granted the company is generating positive cash flow and has a cash balance of $646m. Still, high debt loads are not something we view positively. TTWO also has the highest PE in the sector at 76. However, if we assume that TTWO with its successful continuation of its Grand Theft franchise is about to take the leadership role away from ATVI. we can overlook this and assign it the higher ATVI price multiple.
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