Video game publisher Take-Two Interactive (NASDAQ:TTWO) reported decent first-quarter numbers alongside an in-line Q2 and full year guide. Although the numbers didn’t smash expectations, TTWO stock is soaring in response. It jumped more than 10% after the earnings report and conference call.

Why the huge rally on TTWO stock on rather unexciting numbers? Basically, buy-side expectations were low.

Thanks to prevailing competitive risks from Fortnite and a not-so-great earnings report from peer Electronic Arts (NASDAQ:EA) last week, TTWO stock fell off a cliff in late July. It dropped from nearly $130 to $110 in just a few days. Clearly, investors weren’t expecting much going into the print. If anything, misses and down-guides were priced in.

But, Take-Two’s report was actually pretty good. It largely hit the numbers across the board, and now, the market is sending TTWO stock back to where it was before the EA report.

Does this make sense? Absolutely. TTWO stock was undervalued down at $110, and with a huge Red Dead Redemption 2 catalyst coming up, it made no sense for this stock to be that cheap.

Will the rally continue? I’m not convinced. Near $130, TTWO stock starts to look maxed out from a valuation perspective. Plus, there’s so much hype surrounding the Red Dead Redemption 2 catalyst that I’m not convinced that won’t be a “sell the news” event.

As such, I’m cautious on TTWO stock here and now, but bullish in the long-term.

Here’s a deeper look.

Beware Take-Two Stock Here and Now

Despite the healthy stock price reaction, Take-Two’s numbers weren’t that great. Earnings in the quarter actually missed expectations, and the bookings guides were largely just in-line with estimates.

Granted, the whole narrative of this company adding stability to revenues and boosting margins through the digital gaming shift remains on track. Digitally-delivered revenue accounted for over 80% of revenues in the quarter, versus 64% one year ago. Meanwhile, recurrent consumer spending accounted for over 60% of total revenues, versus roughly 40% one year ago.

But, growth presently isn’t huge. Revenue and bookings were actually down year-over-year in the quarter. Declining revenues for a stock trading at nearly 30x forward earnings doesn’t make much sense.

Unless you know that Red Dead Redemption 2 is launching in October. Clearly, investors have all their attention focused on that launch, and are expecting huge numbers.

That creates a tricky situation for TTWO stock heading into the second half of 2018. Expectations are really high for Red Dead Redemption 2, and TTWO stock trades at a bigger-than-normal valuation as a result. From this perspective, there is a lot risk on the table over the next several months. Any weakness in Red Dead Redemption 2 could cause a sizable sell-off.

Because of this dynamic of super-charged expectations heading into the October launch of Red Dead Redemption 2, I think that the best thing to do with TTWO stock here and now isn’t to add more, but rather wait for more weakness.

Long-Term Outlook Is Strong

Despite concerns regarding where TTWO stock will go in the near-term, I am very confident that this stock heads meaningfully higher in a multi-year window.

At its core, Take-Two is backed by perhaps the most robust and enduring content portfolio in the entire gaming world. From Grand Theft Auto to NBA 2K to Red Dead, Take-Two’s games are extremely popular and extremely diverse. This guarantees the company a solid growth trajectory over the next several years.

But, the reason to buy TTWO stock for the long haul is because growth will get a big lift over the next several years. Take-Two is taking all those popular games, and throwing in recurrent consumer spending features. Thus, whereas before Take-Two would simply make a game and sell it and revenues were lumpy between new game releases, Take-Two now makes a game, sells it, and continuously rolls out upgrades and micro-transactions to that game to keep fans spending on Take-Two content.

At the end of the day, this huge recurrent consumer spending shift simply means more money in the pockets of Take-Two. Plus, margins on that revenue are higher than physical video game margins. Thus, you get a big margin boost, too.

Overall, this whole digital and recurrent consumer spending shift will drive a multi-year growth story for Take-Two wherein revenues and profits will soar. This will inevitably lead to a higher TTWO stock price in the future.

Bottom Line on TTWO Stock

Don’t buy now. The time to buy was before earnings when TTWO stock was languishing around $100.

At this point in time, it is best to wait for dips. We could get that dip soon, as expectations for Red Dead Redemption 2 are almost too big here and now.

As of this writing, Luke Lango was long TTWO and EA.