Shares of video game publisher Activision Blizzard, Inc. (NASDAQ:ATVI) rose sharply on May 4 after the company reported better-than-expected first quarter numbers. ATVI stock closed the day up more than 4.5%, just shy of $70 a share.

By itself, ATVI’s post-earnings move looks strong. But in context, it’s just a blip on the radar. Year-to-date, ATVI stock has simply bounced between the mid-$60’s and upper-$70’s, including a five-year high $78.22 on March 9. Thus, this rally to the upper-$60’s is just a bounce back to the middle of that trading range.

Is it anything more?

I don’t think so. Activision has a ton of catalysts in the pipeline, but all those drivers seem largely priced in at current levels. As such, valuation remains a concern for ATVI stock, and the most likely near-term outcome is for the shares to remain range-bound until fundamentals catch up to the price tag.

Here’s a deeper look:

Activision Has Strong Growth Catalysts

At its core, the ATVI growth narrative is quite robust, both in the near term and longer term.

The company has a strong portfolio of titles that will continue to sell well, even in a crowded video game market (think names like Call of Duty and World of Warcraft). The video game industry in general will also benefit from solid demand catalysts over the next several years as AR and VR technologies are integrated with gaming consoles. That broad demand bump for video games will flow into player demand for ATVI’s games.

Micro-transactions are also a huge growth driver for this company. ATVI, alongside other video game publishers, are selling in-game content to consumers, thus increasing the amount of money they get from the production of a single game. This is additive to both revenues and margins.

Perhaps most importantly, ATVI has launched Overwatch League and Call of Duty League in an attempt to pioneer a new eSports genre which could be massive (on par with NFL, NBA, and MLB, but on a global scale).

ATVI Metrics May Show Cause for Concern

ATVI’s recent quarterly numbers underscore that all of these growth drivers remain alive and well.

Call of Duty monthly active users are up, and World of Warcraft engagement is up. Call of Duty in-game net bookings increased year-over-year. Same with World of Warcraft in-game net bookings. Overwatch League continues to reach millions of viewers per week, while Call of Duty League cumulative hours watched has doubled year-over-year.

But even with all those great catalysts converging, revenue growth in the quarter was still just 14%. Meanwhile, operating margins actually slipped back a full 4 percentage points because of big investments into Overwatch League.

Things aren’t supposed to get better, either. Revenue growth this year is pegged at just 5%.

Those Catalysts Are Already Priced In

Activision stock is over-priced considering its most-realistic growth trajectory.

The fundamentals of the video game market aren’t getting that much stronger. The eSports tailwind is already largely here. Micro-transactions might actually cool off due to poor publicity. And physical video game demand is already soaring thanks to the Nintendo Switch.

As such, today’s revenue growth rate is likely to get somewhat, but not that much, better over the next several years. I think it is likely revenue growth heads towards 7.5% per year over the next 5 years.

Meanwhile, margins are taking a step back now, but that should reverse course soon. Near-term investments into Overwatch League and other growth initiatives will peel back over time. At that point, high-margin revenue streams from micro-transactions and digital advertising will gain scale and help margins head higher. All together, operating margins should be able to get to 40% in five years, from the low-to-mid 30’s level which has been the norm for the past several years.

That combination of 7.5% revenue growth and 40% operating margins leads me to believe ATVI can do about $4 in earnings per share in five years.

But that just isn’t enough to warrant the current valuation.

A historically average 20-times forward multiple on that $4 implies a four-year forward price target of $80. Discounted back by 10% per year, that equates to a present value in the mid-$50’s.

Bottom Line on ATVI Stock

I understand why everyone is all excited about ATVI stock given the tailwinds in eSports, micro-transactions, and VR/AR. It’s in a hot segment. Arlington, Texas, has recently joined the roster of cities with plans to build state-of-the-art esports stadiums. The Dallas suburb’s 100,000-square-foot, state-of-the-art esports stadium is scheduled to open later this year.

But those catalysts seem fully priced in here and now. That is why ATVI stock has simply been range-bound for several months.

The fundamentals need to catch up to the stock’s price tag. Once they do, the stock will be a buy. But until then, expect choppy trade to persist.

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