Earnings continue to trickle out with generally good results. Momo Inc (ADR) (NASDAQ:MOMO), Take Two Interactive Software Inc (NASDAQ:TTWO) and GameStop Corp. (NYSE:GME) are three picks reporting next week worth watching.
We’re nearing the end of earnings season, with 95% of companies in the S&P 500 having already reported first-quarter results. Of those companies, three-fourths have beat per-share earnings estimates, while only 64% have beat sales expectations.
Still, this earnings season is wrapping up better than the average — 6% above the five-year average for bottom- and top-line numbers, to be exact.
Here’s what investors can expect next week when MOMO, GME and TTWO report earnings.
Earnings Reports to Watch: Momo Inc (MOMO)
Chinese Internet stocks have been on a tear this year, and Momo is no exception. MOMO stock is up a sizzling 120% year-to-date and twice as much the past 12 months. The location-based social media platform is also slated to report earnings again on May 23, which could keep shares chugging higher.
The company, which was started six years ago, lets users connect via video and chat. Video made up nearly 80% of revenue during the first quarter of the year, and posted rapid growth as the company gets better at monetizing users.
For the most recent three months, MOMO is slated to report 32 cents per share, more than five times earnings for the same quarter a year ago. That growth should factor into the 62% earnings growth on tap for the full year, and the almost 70% growth expected for the next five years. The latter number especially makes MOMO’s multiple of 20 seem more than worth it.
As long as Momo gives Wall Street the growth expected, I expect more gains from this stock.
Earnings Reports to Watch: Take Two Interactive (TTWO)
Before its last earnings report, I outlined the many reasons to bet on TTWO stock, even if shares seemed a bit frothy. I pointed to its portfolio, which includes hits like Grand Theft Auto V and NBA 2K17, and liked the growth in digital delivery and overall uptrend in gamer spending. TTWO didn’t disappoint.
Since the start of the year, TTWO has gained 34%, tallying an 85% expansion over the past 12 months. The question, though, is whether the run will continue when Take Two reports on May 23.
Analysts are expected 24% earnings growth on 4% sales growth for the most recent quarter. Because of the recent stock gains, any disappointment could send share sliding. TTWO is already trading for a forward price-earnings ratio of 24 compared to long-term earnings growth of just 17. As long as TTWO posts another impressive quarter, investors will likely be okay with the froth.
But if shares do cool off due to earnings? Savvy investors will be ready to pounce.
Earnings Reports to Watch: GameStop (GME)
The last company on this list hasn’t enjoyed any gains in recent years. Brick-and-mortar video games retailer GameStop has struggled due to steep competition and a shift to streaming games. Indeed, for the most recent three months, a 2% sales decline is slated, while earnings should shrink by 23%.
Worse, full-year earnings are expected to decline by 13%, and then be compounded by another 33% decline next year. Earnings estimates for every period — current quarter, next quarter, current year, next year — have fallen dramatically in the past three months alone.
The silver lining is that GameStop stock has been beaten down to the point that such a downtrend is more than accounted for. Shares are currently trading for just seven times forward earnings, and the stock’s decline has bred a nearly 7% dividend yield.
But bottom-fishing has never been my strategy of choice. It’s hard to time and comes with a lot of risk. Unless we see some strong evidence of a turnaround in the earnings report, I’d find a more fundamentally sound play on the video game space.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.