The video game stocks have been very volatile over the past 15 months. Of the group, Activision Blizzard (NASDAQ:ATVI) has certainly seen its share of ups and downs. Despite a steady economy and strong consumer, Activision Blizzard stock has been under tremendous pressure.
Instead of rallying to new highs like many other stocks this year, ATVI stock is simply trying to recover from its massive losses. From peak to trough — from October 2018 to February 2019 — shares lost more than 52%.
Now though, the stock is in breakout mode. Activision Blizzard stock just hit new 2019 highs and is pushing through some notable levels on the charts. Can it keep up the run or is it just a holiday squeeze?
Let’s look at the charts.
Trading ATVI Stock
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The first is the daily chart, followed by weekly action for Activision Blizzard stock below.
On the daily chart, ATVI stock is above all of its major moving averages and is making new highs. From here, it looks like it can continue higher, as it’s not too overbought (blue circle) and shares are consolidating.
A look at the weekly chart unveils a few different notes — some good, some bad. Starting with the former, we can see that Activision Blizzard stock is also clearing its 200-week moving average. It has been a year since ATVI stock has been above this metric. Further, the breakout on the weekly chart looks very clean from a technical perspective. This is a textbook ascending triangle.
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On the downside, Activision Blizzard stock is nowhere near making new highs. While shares may be hitting their highest levels of 2019, they’re well off the 2018 highs up at $84. In fact, ATVI stock would need to rally another 42% just to hit those highs.
That’s a lot to ask of a stock, even if the chart does look bullish. So what now?
I would love to see a rally up to $65, which has been a notable level over the past several years. While atypical to study the three-year chart in regards to Fibonacci levels, the 61.8% retracement does come into play at $65.07 in this case.
That would represent a rally of about 10% from current levels. Over that mark and a rally to $70-plus is possible. It won’t be a straight line and I’m certainly not sure that Activision Blizzard stock can make new all-time highs in 2020. But rallying to $65 and eventually clearing this mark is the first step.
On a pullback, see that $56 to $57 — the breakout level — acts as support. If ATVI rallies further before pulling back, see if the 200-week moving average buoys the name.
Valuing Activision Blizzard Stock
Like the charts, there is good and bad in the fundamentals for Activision Blizzard stock. Again, let’s start with the good, then the bad.
After a tough 2019, where earnings and revenue are expected to sink 15% and 12.2%, respectively, 2020 is forecast to be a better year. Analysts expect revenue to jump 8.3% to $6.9 billion. Further, they expect double-digit earnings growth of 13.1% to $2.50 per share.
Some will certainly argue that 24 times earnings is too expensive for ATVI, even if it does have high single-digit revenue growth and double-digit earnings growth. My issue isn’t so much the valuation, but rather, the recovery.
Let’s say the company comes right in line with estimates. That is, earnings of $2.50 per share on sales of $6.9 billion. That’s still below 2018’s results of $2.60 per share on revenue of $7.26 billion.
From a technical perspective, Nvidia (NASDAQ:NVDA) is in a similar boat. It’s making new 2019 highs, but at $235, it’s still well off the 2018 highs north of $290. Also like Activision Blizzard stock, NVDA saw a big decline in sales and earnings this year. However, its bounce back is vicious, with sales and earnings forecast to rebound ~20% and ~30%, respectively, and make new highs.
The Bottom Line
Obviously chips and video games are two different businesses, but from a fundamental perspective, Nvidia’s rebound is what we want to see in Activision Blizzard.
The question is, will the market overlook ATVI’s modest rebound and accept a return to growth as good enough? Unfortunately, we won’t find out until we’re slogging through 2020.
With all that said though, the company has put the worst behind it and the technicals favor the bulls. Further, the earnings and revenue growth outlook for Activision Blizzard stock is better than both of its two main peers, Electronic Arts (NASDAQ:EA) and Take-Two Interactive Software (NASDAQ:TTWO).
Let’s see if Activision Blizzard stock can maintain momentum after the holidays.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long NVDA.
