Tech stocks have been slaughtered recently, and high-flying video game publisher Activision (NASDAQ:ATVI) has been no exception. At the beginning of October, ATVI stock was making fresh all-time highs around $85. Today, ATVI stock trades just north of $70.

But the good news is that this recent sell-off looks like an opportunity.

The long-term fundamentals on ATVI stock remain strong. This is a strong growth company powered by secular tailwinds in the video game industry, which include recurrent consumer spending, esports and next-gen gaming innovation. All signs point to these tailwinds continuing with exceptional momentum.

Meanwhile, the near-term fundamentals on Activision stock are steadily improving. The company’s big holiday title, Call of Duty: Black Ops 4, has been a smashing hit and promises to provide a huge lift to the numbers over the next few months.

The one big concern with ATVI stock is its valuation in a rising rate environment. The forward earnings multiple hovers around 27, versus a five-year average forward multiple of 21. That isn’t a great situation with rates rising. But, the growth trajectory at ATVI is good enough to support today’s 27 forward multiple.

As such, valuation is reasonable and fundamentals are strong. I think that makes this dip in Activision stock a buying opportunity.

ATVI Stock Has Strong Catalysts

There are four big catalysts for Activision.

First, and most importantly, is the esports catalyst. Through Overwatch League, Activision has already distinguished itself as a leader in the burgeoning esports space.

OWL was a huge success last season, and is growing rapidly. Last season, there were just 12 teams. Next season, there will be 20 or more teams, putting OWL on track to have as many teams as the NBA, NFL and MLB (all of whom have roughly 30 teams). Overall, esports is still in the early stages of becoming a global phenomena that attracts millions of viewers and big advertising dollars. As that happens, Activision’s numbers will dramatically improve.

Second, you have the recurrent consumer spending catalyst. Over the past several years, video game publishers have upped their revenue by implementing micro-spending tactics within games. These micro-spending tactics have been hugely successful, and consumers are participating in these micro-spending transactions left and right. This catalyst appears to be on its last legs, but over the next several years, revenues should be stable regardless of new launches due to this micro-spending.

Third, there is the next-gen innovation catalyst. Technology is rapidly changing all fields. This is especially true in the video game world. It seems the whole video game world is just waiting for mainstream VR and AR gaming experiences. Once those experiences go mainstream, video game interest globally will sky-rocket higher, and Activision should naturally benefit as a result.

Fourth, ATVI has a huge catalyst this holiday season with Call of Duty: Black Ops 4. There were big expectations for this game from analysts and consumers alike, and it didn’t disappoint. The game set launch day records. It was the largest day one digital release in company history, and hauled in $500 million over the 3-day launch weekend. Engagement was high, too. The game set a Call of Duty record for most combined players, average hours per player and total number of hours played.

Overall, despite weakness in ATVI stock, the growth narrative at Activision remains surprisingly robust. That means that if the valuation checks out, this could be a “buy the dip” candidate.

Activision Stock Is Reasonably Valued

The valuation on ATVI stock is ostensibly rich. You have a stock trading at 27X forward earnings. That is rich on it’s face, and even richer when you consider history. Normally, this stock trades at 21X forward earnings. Thus, ATVI stock is trading at a near 30% premium to its historically normal valuation.

That isn’t a good situation, especially with interest rates rising.

But, the growth narrative at Activision supports a super-charged valuation for ATVI stock. The two big long-term catalysts for this stock are AR/VR and esports. Both of those markets are relatively nascent with 20%-plus growth potential over the next several years. As such, ATVI stock is easily a high-single digit, if not 10%-plus, revenue grower over the next several years.

Under that assumption, and also assuming margins grow at a very modest rate due to higher recurrent consumer spending, I think $4.50 is a reasonable target earnings-per-share for Activision by fiscal 2022 (current Street estimates call for $3.50 by fiscal 2020). A historically normal 21 forward multiple on that implies fiscal 2021 price target of $94.50. Discounted back by 10% per year, you are talking about a 2018 price target of just over $70.

That is exactly where Activision stock trades right now.

Thus, while ATVI stock isn’t undervalued or a bargain here, it is reasonably valued with strong growth fundamentals and a powerful near-term catalyst. That combination implies that the stock should work from current levels.

Bottom Line on ATVI Stock

Stock in Activision isn’t cheap here. But, it is reasonably valued considering the company’s robust growth profile. Dips below $70 offer a very compelling entry, while dips to $70 also look quite compelling considering near-term catalysts.

As of this writing, Luke Lango did not hold a position in any of the aforementioned securities, but may initiate a long position in ATVI within the next 72 hours.