Company / Analytics

Analytics, 02 September 2022

Top video games stocks

Gaming stocks did exceptionally well in the COVID-19 pandemic as business shutdowns and social-distancing measures limited peoples’ entertainment options. This raised interest among investors in the stock and has become a popular sector in the last decade. The gaming sector involves developing, marketing, and selling video game hardware and software.

Video games offer a wide portfolio of stocks, and to the average non-gamer investor, choosing stocks for their portfolio might be challenging. In this article, we analyze three gaming stocks, each with a unique market trait.

The first stock exhibits strong market performance, shown by the best returns or smallest declines in total return over the past 12 months. The second stock will exhibit strong growth characteristics and fall under growth stocks, and the third gaming stock presents the best value by having a low price-to-earnings (P/E) ratio.

Best performing video game stock: Electronic Arts Inc. (EA)

Electronic Arts, involved in the development of games, content, and online services for consoles, mobile devices, and PCs, has had probably the best performance this year among gaming stocks. The stock has significantly outpaced the S&P 500 index year to date, down only 6% compared to the index decline of 13%.

Among gaming stocks, EA posted the best 12-Month Trailing Total Return percentage at +0.5%, with nearly all other gaming stocks posting negative figures. The stock also trades at a modest valuation of just 17 times forward earnings estimates. That is a discount on the S&P 500 average price-to-earnings multiple of 21, making the stock also among the best value stocks today.

The company’s strategy that keeps its user base spending, called live services, which include several items including subscriptions, extra content, and other in-game spending activities, nearly doubled to $3.9 billion over the last four years.

The company also expects total bookings for fiscal 2023 to grow 6% year over year to about $8 billion, so growth in extra content will serve as an important driver. Another upside for investors is that earlier this year on May 10, Electronic Arts announced a quarterly cash dividend of $0.19 per share of common stock, which amounted to a 12% increase from the prior quarter.

Fastest Growing Video Game Stocks: Avid Technology Inc. (AVID)

Even though Avid Technology doesn’t develop games directly, the company is involved in the development of software and integrated solutions for video and audio content creation, management, and distribution for video game companies, media, and the entertainment industry. It is therefore categorized as a gaming stock.

The company’s YOY percentage revenue growth and the most recent quarterly YOY earnings-per-share (EPS) growth, are second only to EA. Both sales and earnings are critical factors in the success of a company, The company posted a 130% while EA posted a 207.7 EPS growth and a 35.6% revenue growth YOY.

Shares of Avid Technology Inc. (AVID) were up more than 12% Tuesday morning at $27.02, on the news of it getting added to the S&P SmallCap 600. The stock was added to the index prior to the opening of trading on Thursday, September 1.

In terms of revenue, The company went from generating a net loss of $13.6 million in 2017 to generating a net profit of $41.4 million last year. Subscriptions have been the major generator of revenue. In 2021, for instance, subscription revenues brought with them an 86.2% gross margin. This compares to 81.2% for maintenance products and 40.7% for all other portions of the enterprise. Operating cash flow increased from $8.9 million in 2017 to $62.5 million in 2021.

Best Value Video Game Stocks: Ltd. (SOHU) Limited is a China-based mainstream media platform that provides online media, video, and game products and services on PCs and mobile devices in China.

Sohu’s 12-month trailing price-to-earnings (P/E) ratio stands at 0.82%. Because profits can be returned to shareholders in the form of dividends and buybacks, a low P/E ratio shows you’re paying less for each dollar of profit generated.

Earlier this month, the company released its second-quarter earnings, with the company reporting $194.8 million in revenue. Profits stood at 25 cents per share while earnings were reported at $8.7 million in its second quarter.

The Sohu stock is up 6.7% year-to-date, outdoing most global indices that have crashed in the year, thanks to the ongoing global recession fears. This indicates a strong upside potential and a god investment opportunity.

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