U.S. President Donald Trump is calling the December selloff in equities a “glitch”. It remains to be seen whether or not that’s true. But, one selloff that does look like a glitch is the late 2018 drop in shares of video game publisher Activision (NASDAQ:ATVI).

In early October, ATVI was an $85 stock riding on a 30%-plus year-to-date gain. Then, the markets started to tumble. ATVI stock fell, too. It ended up dropping more than 40% to $45, and closed out 2018 with a 25%-plus year-to-date loss.

At this point in time, the late 2018 drop in ATVI stock looks like a glitch.

To be sure, the selloff is somewhat warranted. Poor results from the new Call of Duty title converged on an overextended valuation in late 2018, and that convergence rationally warranted a correction downward in Activision stock.

But, a 40% plunge is overdone. This company has exceptionally attractive long-term fundamentals through secular growth trends like a rise in digital and mobile consumption, accelerated new console innovation, and the mainstream emergence of eSports. Those long-term fundamentals are converging on a valuation that is now the lowest it’s been in years. This set-up of strong growth converging on a discounted valuation implies healthy upside potential for ATVI stock from current levels.

As such, ATVI stock looks compelling on this dip.

The Sell-Off Is Warranted

To be sure, the late 2018 sell-off in ATVI stock was somewhat warranted.

The whole Activision story was building towards the late 2018 launch of Call of Duty: Black Ops 4. Everyone and their best friend had high expectations for this launch, so the whole Street bought the stock. The net result was that Activision was trading at an all-time high valuation ahead of the launch.

Call of Duty: Black Ops 4 reported strong numbers. But, not “all-time high valuation” strong. Plus, the launch was early (October, versus a usual launch in November). The bulk of benefits were consequently carried in the third quarter. Through November and December, then, investors were left with a stock that was trading near all-time high valuation levels. But, the holiday guide was weak, and that was corroborated by an NPD report which said video game sales growth fell flat in November, versus up 24% in Q3.

That’s a bad combination. Indeed, it’s the sort of combination that forces investors to sell in bunches. That is exactly what happened. Throughout November and December, investors sold. ATVI stock dropped.

This all makes sense. Worse-than-expected results converged on an all time high valuation to create material weakness in ATVI stock. But, in the rubble of Activision’s 40%-plus crash, there is opportunity for upside in 2019 and beyond.

The Market Overreacted

In simple terms, the market overreacted to near-term negatives related to worse-than-expected Call of Duty numbers. Now, better-than-expected results will converge on a hugely discounted valuation to create strength in ATVI sock in 2019.

In the big picture, the video game industry is supported by broadly healthy fundamentals. Digital and mobile consumption are on the rise, and that helps promote broader video game adoption. Console and game innovation is accelerating higher, and that, too, helps drive stronger video game interest and adoption. Perhaps most importantly, eSports is still in the early innings of a massive growth narrative wherein video games are becoming a global spectator sport. That implies billions of dollars of additional revenue through advertisements and revenue sharing.

As one of the world’s leading video game publishers, Activision is set to win as these secular trends play out over the next several years.

Activision is backed by some of the most beloved video game franchises in the world, including Call of Duty, Destiny, World of Warcraft, and Overwatch. For perspective on the popularity of these franchises, it is worth noting that the Call of Duty franchise has produced more revenue than the entire Marvel Cinematic Universe, and twice as much revenue as the Star Wars franchise.

Also, Activision’s Overwatch League is the top eSports league in the world. OWL features city-based teams from across the world, and last year’s championship weekend brought in nearly 1 million viewers per minute.

Most importantly, this league is only growing. There were just 12 teams in OWL last year. This year, there will be 20 or more. Plus, the league just signed its first ever retail and e-commerce deal with Fanatics, so OWL teams will now have official merchandise, further legitimizing OWL as a global spectator sport with huge reach.

Overall, the long-term tailwinds supporting ATVI stock remain robust and favorable. All you simply have right now is some near term noise due to a weak holiday quarter guide. But, that noise has pulled the stock 40% lower to trade at its lowest valuation in years, thereby creating a compelling buying opportunity for long term investors.

Bottom Line on ATVI Stock

Activision stock was due for a pull-back in 2018. But, the 40%-plus drop that materialized in the last few months of the year is a glitch.

This is still a very strong company with healthy long term growth drivers. In 2019, better-than-expected results from those strong drivers will converge on what has become a hugely discounted valuation. This convergence will ultimately push ATVI stock meaningfully higher over the next twelve months.

As of this writing, Luke Lango was long ATVI.