The GameStop (NYSE:GME) saga drew the attention of investors and scrutiny from regulators. The short squeeze rally took GME stock to a high of $347. Today, the stock has corrected all the way down to around $48 and looks to be falling. Of course, gaming stocks have a multi-year industry tailwind. However, individual stocks can be under-performers even in a high growth industry.
As an investor, there is one important takeaway for me. Speculation or factors like a short squeeze can trigger a hyperbolic rally. However, the stock price will soon reflect fundamentals.
In the end, a handful of investors might make money, but there will be a significant number of investors who will end-up trapped in a fundamentally weak stock. GME stock is a good example.
I intend to discuss four gaming stocks that are better than GME stock. Be it from a short-term trading or long-term investing perspective, investors can consider these quality gaming stocks.
- Glu Mobile (NASDAQ:GLUU)
- Activision Blizzard (NASDAQ:ATVI)
- Electronic Arts (NASDAQ:EA)
- Corsair Gaming (NASDAQ:CRSR)
4 Gaming Stocks Better Than GME: Glu Mobile (GLUU)
GLUU stock is probably among the few undervalued names among gaming stocks. The stock currently trades at a price-to-earnings ratio of 16.3. With earnings likely to grow at 32.87% this year, GLUU has a price-earnings-to-growth-ratio (PEG) of 0.5. In general, a PEG of 1 indicates fair value. I would not be surprised if GLUU stock doubles in the next 12-months.
For the third quarter of 2020, the company reported 34% growth in revenue and 38% growth in bookings. Importantly, Glu Mobile delivered free cash flow (FCF) of $31.5 million. If FCF remains consistently strong, there is a solid case for long-term value creation. The company already has $318.1 million cash that can be used for organic and inorganic growth.
Glu Mobile has provided initial guidance on bookings to be in the range of $595 to $605 million for the current year. However, this guidance does not include potential growth from four new IP titles to be launched.
An updated guidance is likely to be a key stock upside trigger. Glu Mobile also expects margin expansion in the range of 220 to 420 basis points in fiscal year 2021 as compared to the last year. If margins do improve in the next few quarters, GLUU stock is likely to surge.
Activision Blizzard (ATVI)
ATVI is another attractive name among gaming stocks that’s trading at reasonable valuations. After consolidation around $80 levels, ATVI stock has moved higher.
I believe that the rally is likely to sustain in the current year. Recently, Berenberg investment bank increased the price target for the stock to $100 calling it a “higher-potential growth name.”
In terms of growth, Call of Duty remains the key catalyst. Modern Warfare and Warzone have triggered strong upside in monthly active users. I believe that these titles will continue to deliver growth. In addition, Call of Duty Mobile has been among the highest-grossing new games in the U.S. app stores. In China, more than 50 million users have pre-registered.
Activision Blizzard reported a net cash position of $3.95 billion as of September 2020. This gives ample financial flexibility for continued investment in a successful franchise. The company already believes that “the pipeline across our portfolio and the potential for revenue and earnings expansion has never been stronger.”
Overall, ATVI stock trades at…
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