The Epic Games–Apple (NASDAQ:AAPL) lawsuit has the video game industry buzzing as of late. After months of warring words, both companies will finally be settling things inside the court of law. Epic Games appears to be the torchbearer for several video game developers who feel hard done by Apple anti-competitive behavior. Savvy investors, though, will think of this as an opening to invest in a few video game stocks amidst the price correction.
Though the industry might be facing short-term pressures, it’s clear that its fundamentals remain intact. The novel coronavirus acted as a tailwind for the rapid growth in the sector experienced last year. In addition, stay-at-home restrictions left people with little to do, which sent video game sales through the roof.
Overall, the industry isn’t showing any signs of slowing down this year either. In the first quarter of 2021, consumers spent $14.9 billion on video games, representing a 30% increase on a year-over-year (YOY) basis.
So, with that being said, these are three of the best video game stocks to invest in at this time. They are:
Now, let’s dive in and take a closer look at each one.
Video Game Stocks to Buy: Activision Blizzard (ATVI)
Activision Blizzard is the top interactive content publisher in the world. It currently enjoys the highest margins and growth in the sector and is a leading innovator in the top-selling platforms. In addition, it has transformed its operating model in the past couple of years to expand its profitability and increase its product momentum. Therefore, with several money-spinners in its portfolio, ATVI stock is a stock that can’t be ignored.
Moreover, its fundamentals are stellar, with an impeccable forward operating cash flow growth of more than 25%. Moreover, it has enjoyed an incredible 2020, posting double-digit growth across each quarter. Moreover, it continues to enjoy recurring revenues from its King and Blizzard segments.
Additionally, the results from its cash cows in Call of Duty, World of Warcraft and Candy Crush continue to amaze. As a result, future revenues and earnings estimates are staggering and 15.6% and 24.7%, respectively. Overall, though, the stock is attractively priced despite the massive upside ahead.
Video game and electronics giant Sony’s entry into the list was a no-brainer. The PlayStation 5 was a massive event for the Japanese conglomerate in terms of pure hardware sales. It has also solidified its dominance in first-party content and seeks third-party collaborations to expand its margins. Additionally, SONY stock has performed incredibly well in the past 12-months, growing by roughly 48%.
Despite the challenges presented by the pandemic, Sony had a spectacular 2020. For fiscal year 2020, its net income increased substantially by 101% to 1.17 trillion yen and witnessed a 9% increase in sales to 9 trillion yen. Sales were massively boosted by its stellar fourth quarter, where revenues rose 27% to 2.22 trillion yen on a YOY basis.
Looking ahead, it expects sales to top 9.7 trillion yen this year. It has to fix its supply chain hiccups with the PlayStation 5, though; otherwise, things could get dicey. However, overall, its fundamentals are rock solid, and it’s on its way to an even bigger 2021.
Video Game Stocks to Buy: Electronic Arts (EA)
Electronic Arts are one of the most prolific video game publishers, with the deepest lineup of video game titles in the market. Moreover, its management believes EA Sports it has the potential to reach 500 million players soon. In addition, it has generated a whopping $1.9 billion in free cash flows in the past four quarters and initiated its first dividend payment in the third quarter last year. Therefore, EA Stock is one of the hottest video game stocks out there.
Earnings performance in the past year has been patchy, but it has finished off the year in style. It recently posted its fourth-quarter results for fiscal 2021, where revenues fell a bit. But its “bookings, which account for deferred revenue, rose to $1.49 billion for the quarter compared with $1.26 billion a year ago.”
Moreover, its live services have been the top-performing area for the company, led by Fifa Ultimate Team and Apex Legends. It has also acquired Glu Mobile in April to strengthen its relatively disappointing mobile gaming division. Forward revenue estimates are looking unbelievable so far, at roughly 13.3%. A lot of this growth will be driven by its innovative pipeline of new and existing titles.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.