Gaming stocks are looking better and worth going long after the latest quarterly results which have been anything but disappointing. Here is a closer look if Take-Two Interactive Software, Inc. (NASDAQ:TTWO), International Game Technology (NYSE:IGT), and Electronic Arts Inc. (NASDAQ:EA) deserve investors’ money;
Take-Two Interactive sales
This was specifically true for the last quarter which saw revenue doubling to $299.5 million while bottom-line improved to a profit of $22.5 million from a loss of $66.8 million. On a yearly basis, Take-Two Interactive Software, Inc. (NASDAQ:TTWO) is still not profitable, but the stock price of $16, which is a mere 16% premium to sales, is not on the higher side. What makes Take-Two Interactive Software, Inc. (NASDAQ:TTWO) interesting is its prospects. The company says it expects to book earnings per share in excess of $2 on sales of at least $1.75 billion – a full 44.6% above the previous year. Analysts are buying this vision and Macquarie and BMO upped their target price reflecting at least 25% upside from here.
Electronic Arts Inc. (NASDAQ:EA) is another console gaming software company which has found investors ready to lap up its shares. After a couple of unprofitable quarters and poor launch of one of its new games, credibility of Electronic Arts Inc. (NASDAQ:EA) was under doubt but that changed with the fourth-quarter financial performance which was better than expected. The March quarter is usually the strongest of the four quarters and even though the company recorded lower sales during the quarter, it made up with profits of $323 million, wiping out losses of previous quarters.
On top of this, the company said its full financial year earnings will be ahead of Street expectations. This does not look out of place considering that Electronic Arts Inc. (NASDAQ:EA) was recently awarded a lucrative contract to develop Star Wars games by The Walt Disney Company (NYSE:DIS). While Electronic Arts certainly trails its larger rival Activision Blizzard, Inc. (NASDAQ:ATVI) in terms of popular game franchises, this latest development indicates the stock may finally be catching up.
Gaming stock of a different type
International Game Technology (NYSE:IGT) is another gaming company, but this company’s focus area is gaming hardware rather than software. The company deals in casino games, gaming equipment, and systems technology. In the second quarter of the current fiscal, the company reported 11% growth in revenue to $600 million while profit grew 26% to $78.2 million. While this is strong growth in itself, the effect is further magnified by the company’s share repurchase offer which caused a 38% growth in earnings per share during the latest quarter.
Since this is a slightly more capital intensive business, International Game Technology has a debt gearing of 1.47. This is a bit on the higher side, but the company generates enough profit to service interest outgo. In fact, its profit margin improved to 13% in the latest quarter, up from 11.6% last year. At a current price of $17.3, the stock trades at a forward price earnings ratio of 12.7 and offers a dividend yield of nearly 2%. Deutsche Bank has a buy call on the stock with a target price of $20.
Foolish bottom line
Overall, first-quarter results of these gaming stocks allude to better times ahead. While these are tough times for console gaming companies, especially Electronic Arts Inc. (NASDAQ:EA), old economy stocks such as International Game Technology offer a safer option to investors.
The article Why Gaming Stocks Are Looking Better originally appeared on Fool.com and is written by Jacob Wolinsky.
Jacob Wolinsky has no position in any stocks mentioned. The Motley Fool recommends Take-Two Interactive. Jacob is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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