On Tuesday after the close of trading, Take-Two Interactive Software, Inc. (TTWO) reported better-than-expected results for its latest quarter. TTWO stock did sell off after the news; however, Take-Two has since arrived at a critical juncture where the bulls can find very defined risk for a long-side shot.
The maker of award-winning video games like the Grand Theft Auto franchise reported Q4 earnings of 21 cents to easily top estimates of 10 cents. Revenues of $223 million also came in high, as the Wall Street consensus was $201 million. Outlook, meanwhile, more or less came in line with analyst forecasts.
The problem: Take-Two’s earnings were down by about 45%, and sales were down 23%.
To be fair, though, the video game business is not one where year-over-year sales comparisons make a ton of sense, considering companies don’t always release big blockbusters on an annual basis. Ergo, the top and bottom lines can fluctuate meaningfully.
Following the report, analysts had a few positive things to say. On Wednesday, Bank of America reiterated its “buy” rating on TTWO stock and even upped the price target from $24 to $25. Then on Thursday, Stifel Nicolaus also kept its “buy” rating on the stock and similarly improved its price target by a buck — from $23 to $24.
The end result: Despite what sounded like decent news from Take-Two, TTWO stock got dumped in Wednesday’s trade by 8%, perhaps mostly around uncertainty concerning future product launches.
TTWO Stock Charts
On the two-year chart, TTWO stock has thus mean-reverted back to its summer 2012 uptrend (black line), which at the moment also coincides with the 200-day simple moving average (red line). Bulls looking to take a stand here thus have greatly defined risk by leaning against Thursday’s intraday lows or a little lower.
The bears might point to the lower highs in early May vs. the March highs. However, the bulls might take comfort in declaring TTWO stock at least near-term oversold after Wednesday’s selling — while it was followed by another 1% drop Thursday, Take-Two ended the session off the lows, leaving a so-called doji candle behind on the daily chart.
Depending on one’s risk aversion parameters and time frames, there are a few ways one could play a potential bounce here.
Options traders might find that selling out-of-the-money puts could make some sense. Stock traders may try a long-side stab with a stop between $18 and $18.45, with an upside target between $19.75 and $20.
Given the aforementioned confluence support level that the stock has arrived at on Thursday, however, a break and hold below support will turn this chart much more bearish.
For now, I am simply looking to see whether TTWO stock can stage an oversold bounce.
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Download Serge’s trading plan in the Essence of Swing Trading e-book here. As of this writing, he did not hold a position in any of the aforementioned securities.
