Video game publisher Take-Two Interactive Software, Inc (NASDAQ:TTWO) used to be a secular winner with mitigated volatility. Thanks to the company’s robust content portfolio and its ability to parlay that strong content portfolio into high-margin micro-transaction growth, Take-Two stock did nothing but grind higher from $15 in 2013 to $130 by end of 2017.

But that run has abruptly ended in 2018.

Year-to-date, Take-Two has been a messy stock with a lot noise. Headwinds have appeared that not many observers saw coming. Fornite has provided unforeseen competition to Grand Theft Auto. The company’s most recent quarter wasn’t all that impressive, and the guide was rather weak.

The release of Borderlands 3 was delayed. And all the sudden, with all these headwinds rushing to the forefront, TTWO investors have become concerned with valuation.

Consequently, so far this year, Take-Two stock has simply bounced between $95 and $125.

It currently sits at $110, square in the middle of its 2018 trading range.

What happens next?

Near-term, choppiness. Long-term, more upside.

Here’s take a deeper look:

Big Picture Outlook Is Strong

The long-term, big-picture outlook on Take-Two stock is overwhelmingly positive.

There are really 3 big-picture things about TTWO that will drive this growth narrative over the next five-plus years.

The first is the company’s robust content portfolio that seems to have ever-increasing demand. From Grand Theft Auto to Red Dead Redemption to NBA 2K, TTWO is behind some of the most well-recognized, most-loved, and most-played video games ever.

Indeed, GTA is the best selling entertainment product ever, and GTA Online continues to set records years after its initial release. Meanwhile, NBA 2K18 is that franchise’s best-selling title ever, and the 2K franchise is nearly two decades old.

Because of this robust content portfolio with ever-increasing demand, TTWO stock is positioned for healthy and stable growth in a long-term window.

The second big-picture thing about TTWO is that the company is successfully leveraging its robust content portfolio to fully capitalize on the massive micro-transaction trend sweeping through the video game industry. For all intents and purposes, Take-Two is the king of the micro-transactions. All of its games have a ton of micro-transaction and recurrent consumer spending opportunities.

Because these micro-transactions are the future of the video game industry, Take-Two is positioned to add significant top and bottom line growth over the next several years through recurrent consumer spending.

The third big-picture thing about TTWO is the company’s promising portfolio expansion potential through its new Private division. TTWO launched Private with the intention of giving independent developers the tools and distribution to make and sell video games.

Eventually, TTWO will happen upon a diamond in this Private division. That will likely turn into yet another successful franchise in the already robust TTWO content portfolio.

Near-Term Valuation Is A Concern

Long-term, then, Take-Two is positioned for healthy growth. But in the near-term, Take-Two stock is running up against some valuation friction which could keep shares stuck in neutral.

The whole Take-Two growth narrative has been building to what is supposed to be a massive fiscal 2019, headlined by the launch of Red Dead Redemption 2. Fiscal 2019 is finally here. That may not be a great thing. Expectations are big (revenue growth is pegged at nearly 40%). So big that it will be tough for reality to meet those super-charged expectations.

In the event that those super-charged expectations are not met, or that next year’s guide is weaker than expected, Take-Two stock could drop rather sharply.

After all, even under robust growth assumptions of healthy revenue growth and margin expansion over the next several years, I still think TTWO will only do about $8 in earnings per share in five years, versus $4.45 expected this year.

A market-average growth multiple of 20-times forward earnings on $8 implies a four-year forward price target of $160. Discounted back by 10% per year, that equates to a present value of around $110.

Therefore, if growth doesn’t live up to expectations, this stock could drop meaningfully below $110.

Bottom Line on Take-Two Stock

In the near-term, the stock is running up against some valuation friction that will likely keep shares range-bound over the next several quarters.

In the long-term, though, Take-Two stock should able to run higher thanks to its robust content portfolio, strong recurrent consumer spending business, and promising Private division.

From this perspective, wait and buy on dips seems like the best strategy.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.