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Activision Blizzard Stock Still Has Coiled Opportunity

Management has an opportunity to recover past glory

The last time I wrote about Activision Blizzard (NASDAQ:ATVI) stock was in early May of last year when it went on a 15% rally. But then it collapsed 50% that ended during the Christmas correction when Activision Blizzard stock bottomed at $39.50 per share. Since then, it has risen more than 40% but is still $10 below the Fibonacci 50% retracement of the terrible correction.

At This Point, Going Retail Would Be a Tailwind for Activision Stock
Source: Lauren Elisabeth / Shutterstock.com

Although in the last six months ATVI stock has done better than the S&P 500, year-to-date it’s lagging a little bit, up only up 14.5%, but still a decent result. It is in the middle of the range of its competitors. But experts still expect more of it as ATVI is still trading more than 10% below their average price target.

And most analyst who cover the stock still rate it as a “buy.” JP Morgan and Webush analysts recently raised their price targets to $62 and $69 per share. Clearly Wall Street still sees more upside in Activision Blizzards stock from here.

The company reported earnings last week and the stock fell a bit on muted guidance. These days investors have no tolerance for cautious comments. It’s usually a selling point when management is cautious, but these days it is more like the kiss of death when it comes to short-term earnings reactions.

Luckily this usually doesn’t change the actual outlook for ATVI. This is typically how they manage expectations for the next round of results.

Activision Blizzard Stock Is Coiled

Interestingly, Activision Blizzard stock did not bottom at Christmas like most of the stock market. They set their lows in February and double-bottomed in June. There is a fresh base below current levels. So the earnings tizzy that just happened is likely not going to have much follow through.

There could be outside pressure from the markets since they are at all-time highs and are possibly susceptible for small dips. But in theory, ATVI should have support through $48 per share. This is the volume profile 12 months point-of-control. These tend to be support on the way down. The bears will need more reasons to break through it. In addition, $47 is a five-year pivot that has served as a good base for the bounce.

ATVI stock bulls have a solid base from which that can continue mounting their recovery efforts. In addition, the weekly chart suggests that there is a breakout opportunity if the buyers can close above $58 per share. Then they could trigger a wave of momentum buyers for a $10 run from there.

To do that they also need management to help improve the company fundamentals. This is on both the strategic front and the performance metric earnings report cards. At a 30 price-to-earnings ratio it is not cheap. This is three times more expensive than Electronic Arts (NASDAQ:EA) so there is still froth it could shed. This could serve as fuel for the sellers on the next dip.

Moreover, last year we saw the emergence of the popularity of the free-to-play games like “Fortnite” that disrupted the ATVI arena. The whole gaming cohort suffered, including Take-Two Interactive (NASDAQ:TTWO) and EA. By now management has had time to react to it and will eventually figure out their role in the shift in gaming tastes. This is inevitable as gamers evolve over time. Esports is here to stay and there is a piece of that pie for ATVI.

Trading ATVI Stock

For those already long Activision stock this is not the time to panic out of it yet. This will depend on investor time frames and risk appetites. For those looking for entry points, the technical momentum and oscillators are not green yet but there is the aforementioned potential spark waiting. So getting into ATVI now means going in on faith it will trigger soon.

Ideally it is best to wait for confirmation. But there is almost never a perfect sign to buy a stock so doing so in moderation is important. Regardless of timing, it is best to not go all in at once especially when markets are this high. Leaving room for error is the only way one can manage tough times.

Nicolas Chahine is the managing director of SellSpreads.com. As of this writing, he did not hold a position in any of the aforementioned securities. Join his live chat room for free here.


Article printed from InvestorPlace Media, https://investorplace.com/2019/11/activision-blizzard-stock-still-has-coiled-opportunity/.

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