Over the recent past, GameStop Corp. (GME) has captured the attention of many investors due to its volatile price movements and popularity on online forums. While some investors have profited significantly from the short-lived rallies on premature hopes of a pause in interest rate hikes, others have suffered large losses.
So, if you are tired of hearing about GME, I would like you to try quality gaming stocks like Tencent Holdings Limited (TCEHY), Electronic Arts Inc. (EA), Playtika Holding Corp. (PLTK), SciPlay Corporation (SCPL) instead.
Let’s explore why these stocks could be better buys instead of GME.
With the Fed reiterating its stance of hiking interest rates until inflation falls to 2%, the stock market will likely be under pressure in the upcoming months.
Amid this, analysts expect GME’s revenue in the current quarter (ending April 2023) to come in at $1.36 billion, down 1.4% year-over-year, while its EPS is expected to remain negative in the fiscal year 2023.
GME’s stock has declined 32.6% over the past year to close the last trading session at $22.92, below its 200-day moving average of $26.38. Moreover, Wall Street analysts expect the stock to hit $13.25 soon, indicating a potential downside of 42.2%.
The gaming industry grew to an unprecedented height due to an upsurge in consumer demand for video games and consoles during the pandemic. With the rise of online gaming and mobile gaming, the industry has become more accessible than ever before, attracting a wider audience of gamers.
The booming industry is tipped to maintain its recent rapid growth and could be worth $401.32 billion by 2027, growing at a CAGR of 12.3%. The proliferation of smartphones coupled with high-speed internet connectivity powered by 5G and the application of AR/VR in modern gaming is expected to drive the growth of companies in this space.
Given the industry’s long-term growth prospects, gaming stocks TCEHY, EA, PLTK, and SCPL could be solid investments to keep an eye on this year.
Tencent Holdings Limited (TCEHY)
Headquartered in Shenzhen, the People's Republic of China, TCEHY is an investment holding company that provides Value-Added Services (VAS) and online advertising services in China and internationally. It operates through VAS; FinTech and Business Services; Online Advertising; and Others segment. The company’s consumer business offers digital content, including online games, videos, and live streaming.
TCEHY’s trailing-12-month net income margin of 33.95% is 942.9% higher than the 3.25% industry average. Likewise, its trailing-12-month ROCE and ROTA of 24.64% and 11.93% compare with the industry averages of 2.94% and 1.32%, respectively.
In the fourth quarter that ended on December 31, 2022, TCEHY’S revenue increased marginally year-over-year to RMB144.95 billion ($21.10 billion). Its non-IFRS operating profit grew 18.9% from its year-ago value to RMB39.43 billion ($5.74 billion), while its non-IFRS profit attributable to equity holders increased 19.4% from the prior-year quarter to RMB29.71 billion ($4.33 billion).
In addition, its adjusted EBITDA came in at RMB49.61 billion ($7.22 billion), up 17.4% year-over-year. Also, its EPS rose 12.1% from the prior-year quarter to RMB10.98.
The consensus EPS estimate of $0.46 for the first quarter ending March 31, 2023, represents a 19.3% improvement year-over-year. The consensus revenue estimate of $21.19 billion for the current quarter indicates a 5.6% increase from the same period in the prior year.
Over the past three years, its EPS and net income grew at CAGRs of 26.1% and 26.4%, respectively. Also, its total assets have grown at a CAGR of 18.3% over the same period.
Shares of TCEHY have gained 37.2% over the past six months to close the last trading session at $47.85.
TCEHY’s promising fundamentals are apparent in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
It has a B grade for Stability and Sentiment. In the 47-stock China industry, it is ranked #14.
Beyond what we stated above, we also have TCEHY’s ratings for Growth, Value, Momentum, and Quality. Get all TCEHY ratings here.
Electronic Arts Inc. (EA)
EA develops, markets, publishes, and delivers games, content, and services that can be played by consumers on a range of platforms, which include game consoles, Personal Computers (PCs), mobile phones, and tablets. The company sells its games and services through retail and digital distribution channels.
On February 3, EA announced that EA SPORTS™, a leader in interactive sports entertainment, signed a partnership with back-to-back Formula 1® World Champion Max Verstappen. Through this agreement, the Oracle Red Bull Racing driver will collaborate with the brand to create content across the EA SPORTS portfolio. This collaboration should help bolster the company’s position in the industry.
For the fiscal third quarter (ended December 31, 2022), EA’s total revenue increased 5.1% year-over-year to $1.89 billion. Its gross profit grew 13.4% from the year-ago value to $1.31 billion, while its operating income rose 183.3% from the prior-year quarter to $289 million. The company’s net income and EPS increased 209.1% and 217.4% year-over-year to $204 million and $0.73, respectively.
For the first quarter ending June 30, 2023, EA’s EPS and revenue are expected to increase 115.5% and 19.4% year-over-year to $0.89 and $1.55 billion, respectively. Over the past three years, its revenue and EBITDA have grown at CAGRs of 11% and 13.4%, respectively.
EA’s trailing-12-month net income margin and ROCE of 14.08% and 13.70% are 332.7% and 366.7% higher than the 3.25% and 2.94% industry averages, respectively. Also, its trailing-12-month ROTA of 7.71% compare with the industry average of 1.32%.
The stock has gained 8.4% over the past month to close the last trading session at $119.03.
EA’s POWR Ratings reflect these solid prospects. The stock has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has a B grade for Value and Quality. Of the 20 stocks in the Entertainment - Toys & Video Games industry, it is ranked #3. Click here to see the ratings of EA for Growth, Momentum, Stability, and Sentiment.
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK is a mobile gaming entertainment and technology company with a portfolio of casual and casino-themed games.
On January 19, PLTK submitted a revised proposal to the Board of Directors of Rovio Entertainment Corporation to acquire Rovio for EUR 9.05 per share in cash. “We firmly believe the combination of Rovio’s renowned IP and scale of its user base, together with our best-in-class monetization and game operations capabilities, will create tremendous value for our shareholders,” said PLTK’s Chief Executive Officer, Robert Antokol.
In terms of the trailing-12-month net income margin, PLTK’s 10.53% is 223.4% higher than the 3.25% industry average. Likewise, its trailing-12-month ROTC and ROTA of 13.88% and 10.21% compare to the industry averages of 3.57% and 1.32%, respectively.
For the fiscal fourth quarter that ended December 31, 2022, PLTK’s total cost and expenses decreased 6.4% year-over-year to $502.90 million. Its income from operation grew 14.6% from the year-ago value to $128.30 million, while its EBITDA increased 9.1% year-over-year to $168.60 million. The company’s net income and EPS amounted to $87.50 million and $0.24, respectively, in the same period.
Over the past three years, its revenue and total assets have grown at CAGRs of 11.5% and 22.2%, respectively.
Analysts expect PLTK’s EPS for the second quarter (ending June 2023) to increase 116% year-over-year to $0.19, while its revenue is expected to be $646.36 million in the same period. Over the past three months, the stock has gained 30.2% to close the last trading session at $10.73.
PLTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of A, translating to Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Stability and Quality. In the Entertainment - Toys & Video Games industry, it is ranked #2. To see PLTK’s ratings for Growth, Momentum, and Sentiment, click here.
SciPlay Corporation (SCPL)
SCPL is a developer and publisher of digital games on mobile and web platforms. The company operates in the social gaming market, offering a variety of social casino games such as Jackpot Party Casino, Gold Fish Casino, Quick Hit Slots, 88 Fortunes Slots, etc., and casual games comprising Bingo Showdown, Solitaire Pets Adventure, and Backgammon Live.
The stock’s trailing-12-month EBIT margin of 22.89% is 181.2% higher than the 8.14% industry average. Also, its trailing-12-month ROCE, ROTC, and ROTA of 21.56%, 16.64%, and 2.93% compare with the industry averages of 2.94%, 3.57%, and 1.32%, respectively.
On March 1, Josh Wilson, Chief Executive Officer of SCPL, commented, “We significantly outperformed the social casino market and achieved record KPIs in the fourth quarter, including payer conversion of 10.4%, ARPDAU reaching an 18% increase YoY and a 13% YoY increase in paying users.”
SCPL’s revenue increased 17.9% year-over-year to $182.10 million in the fiscal fourth quarter that ended December 31, 2022. The company’s net income and adjusted EBITDA came in at $52.80 million and $58.70 million, up 332.8% and 23.8% from the prior-year quarter, respectively, for the same period.
In addition, its total assets came in at $765.70 million for the period that ended December 31, 2022, compared to $681.60 million for the period that ended December 31, 2021.
Street expects SCPL’s EPS and revenue to increase 34.7% and 12.9% year-over-year to $0.24 and $178.31 million, respectively, in the fiscal first quarter ending March 31, 2023. It surpassed the revenue estimates in three of the trailing four quarters.
SCPL’s revenue grew at a 12.9% CAGR and EBITDA at a 15.6% CAGR over the past three years, respectively. Its EPS has grown at a 19.9% CAGR over the same period.
Shares of SCPL have gained 53% over the past six months and 29.1% over the past year to close the last trading session at $16.66.
SCPL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked first out of 20 stocks. Click here to see the other ratings of SCPL for Momentum, Stability, and Sentiment.
What To Do Next?
Get your hands on this special report:
What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks which could double or more in the year ahead.
TCEHY shares were trading at $46.03 per share on Monday afternoon, down $1.82 (-3.80%). Year-to-date, TCEHY has gained 14.66%, versus a 4.14% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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