Mar 1, 2011

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Video Game Stocks

Video Game Stocks

Which Video Game Stock is Right for You?

Although the major holidays are right around the corner for retail outfits especially in the video game stock sector, the industry continues to sink to basement price tags. Sales for both hardware and software continue to drop mainly due to a toxic combination platter of weak consumer spending, ancient game console units and an increasing variety of free or cheaper priced gaming offers on many smartphones.

The most recent setback within the video game stock sector is the speed bumps to overcome is Nintendo. (Symbol:NYDOY) Nintendo just last week pushed out the launch of its cutting edge no glasses required 3D capable hand held device to beginning of 2011. Many investors hoping in anticipation that it just might flood the shelves in stores and be primed for the 2010 holiday season blitz. Adding more injury to insult, Nintendo has tipped its cap that sales of its DS games are falling short of expectations, while the company had recently slashed its profit forecast for the fiscal year by more than 50%.

With an array of light looming on the horizon, there are higher hopes that demand within the sector can get a boost from the coming launch of the new Kinect hands-free system from Microsoft (Symbol:MSFT) XBox 360, a major cash infusion is not likely. While patiently waiting in this economic slowdown to reverse course, rising to the surface while its price tag is still sitting in the basement for astute investors to take advantage of is the video game stocks most notorious player, Take Two Interactive (Symbol:TTWO).

TakeTwo Interactive is very well known for its groundbreaking and game changing Grand Theft Auto franchise packed with frowned upon antics such as sex,drugs and rock and roll coupled in with violence and a history of finding itself caught in a spider web with regulators in reference to a stock options probe equating to its tainted reputation.

Building itself up from the inside back at the drawing board, the company this year has created a second valuable core franchise called Red Dead Redemption. She is not a one trick pony either, late this summer it launched the second title in a third growing franchise, yet another graphic violent game called Mafia II. TakeTwo is also expanding its once narrow-minded releases with diversification into the sports line with such games like hockey,baseball,basketball and others to name a few.

Getting to the meat and potatoes of being a TakeTwo investor are the savvy shareholders who are onboard, for one worth mentioning being Carl Icahn. Early in 2010, He had cut a deal with management that gives him three of the eight board seats while he has building his stake which currently stands at 15% of all the shares outstanding.

From a fundamental standpoint, its gets even more interesting. Recently the company easily beat the streets expectations in the fiscal third quarter ending July, TakeTwo posted a revenue to the tune of $354 million destroying its own guidance of $250-300 million. Not to be outdone by lifting its October quarter revenue outlook towards the $280-320 million range from $250-300 million.

So after accessing and analyzing the situation in depth, you get a deep discounted stock.TTWO has a market cap of only $850 million, pulling out the company’s $130 million in net cash and you have an enterprise value of only $730 million for a company that is anticipated to generate $1.1 billion in revenue for the October 2010 fiscal year!

In video game stocks summary just two years ago, when TakeTwo basically rejected a $25 price tag per share takeover bid from Electronic Arts (Symbol:ERTS), not a sound business move as now the stock price is sitting at a $10 figure… but we all are well aware hindsight is 20/20. Its quite clear why Carl Icahn continues to buy more down at these suppressed levels, it IS indeed a bargain. While the sector is taking it on the chin, consolidation does seem overdue and TTWO has a cosmetic valuation. Time will tell as it always does.

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