Video game publisher Activision Blizzard, Inc. (NASDAQ:ATVI) announces fourth quarter earnings next week, and I think ATVI stock is a buy into that report.

While I am remain hesitant on valuation relative to the market, ATVI is the type of stock that always sports a premium valuation relative to the market thanks to its strong content portfolio that produces healthy cash flows year in and year out. Investors have grown accustomed to paying a premium for that consistent cash flow.

Moreover, I think ATVI had a really good quarter thanks to Call of Duty. Also, early viewership numbers for Overwatch League have been much better than anyone expected.

Management will talk up the potential of Overwatch League on the call. The combination of CoD strength and Overwatch League potential will boost investor enthusiasm. That will spark multiple expansion, and ATVI stock will roar higher.

All in all, I’m bullish into the report and believe ATVI could have another strong year. Here’s a deeper look.

Reasonable Valuation

First, let me address why valuation is notable, but not terribly concerning at these levels.

Thanks to robust growth potential in eSports as well as incremental revenue opportunities in micro-transactions, ATVI’s revenue growth will likely be super charged over the next several years. This is a company set to grow revenues at a mid single-digit rate this year without much of an eSports lift.

I believe that an eSports lift could boost revenue growth to the high single-digit range over the next several years. That level of revenue growth coupled with healthy margin expansion should drive something like 15% to 20% earnings growth (17.5% at midpoint versus Street consensus of ~16%).

ATVI currently trades at nearly 28-times 2018 earnings estimates for that 17.5% growth potential, giving the stock a PEG (price-to-earnings/growth) ratio of 1.6. That is much higher than the S&P 500‘s 1.3 PEG ratio.

But this is nothing new. Back in 2015-16, the market was trading at a PEG of around 1.7. ATVI stock had a PEG of 1.9 during that time frame. But that didn’t stop ATVI stock from heading higher. ATVI was a $20 stock at the beginning of 2015. It is a $70 stock today.

In other words, a bigger PEG ratio hasn’t stopped ATVI stock from being an out-performer. With its biggest growth catalyst in recent memory on the horizon (eSports), ATVI stock will keep tracking higher despite a larger PEG ratio. This stock will grow into its valuation.

Strong CoD Numbers

Second, lets discuss why ATVI is set to report robust holiday numbers.

According to data from NPD, video game software sales just had their first up December in several years. Buoyed by robust consumer spending during the holidays and new console enthusiasm, console software sales rose 2% in December. That compares favorably to declines in December 2016 and December 2015.

Better yet, the best-selling video game during the upbeat December month was Activision’s Call of Duty: WWII. Considering CoD was the best selling video game in a uniquely upbeat month for video game sales, it is likely that next week’s CoD numbers will impress investors.

Moreover, much maligned video game retailer GameStop Corp. (NYSE:GME) just reported really strong video game numbers for the holiday quarter. Comps rose 12%, while new video game sales rose 7%. The big driver of that 7% increase in video game sales was CoD.

Huge OWL Demand

Third, lets address just how popular Overwatch League has been.

For those who are unaware, the narrative dominating ATVI has been the one about OWL. It is the video game world’s first legitimate push into turning eSports into an NFL/NBA/NHL/MLB equivalent. It is a global league with city-based teams.

There is a preseason, a regular season, and a post-season. Players are paid, there are sponsors, and sites like ESPN even recap OWL action on their site, much like they do for the NFL, NBA, NHL, and MLB.

Some laughed that eSports was trying to be similar to a professional sports league, but early viewership numbers suggest that critics were wrong. OWL recorded 437,000 concurrent viewers at its peak on opening day, and averaged about 408,000 viewers throughout opening day. T

hat is more viewers than the NFL raked in on Twitter Inc (NYSE:TWTR) or Amazon.com, Inc. (NASDAQ:AMZN). Viewership naturally dropped in week two, but it still is promisingly high and was stable throughout the week, implying there is a faithful base of people who watch this stuff on a consistent basis.

Bottom Line on ATVI Stock

Tech stocks have been subject to some weakness recently, but I think that this weakness is a “buy the dip” opportunity when it comes to ATVI stock. Next week’s earnings report could be a huge upward catalyst for this stock.

As of this writing, Luke Lango was long ATVI, AMZN, and GME.