No longer a niche hobby, the digital entertainment ecosystem exploded in mainstream popularity over the years, thus incentivizing investments in gaming growth stocks. According to the World Economic Forum, gaming continues to boom, leading analysts to project a valuation of $321 billion by 2026. Plus, interest in the sector might not peak there.
Per Grand View Research, in 2021, the global video game market reached a valuation of $195.65 billion. Experts there project this segment to expand at a compound annual growth rate (CAGR) of 12.9% from 2022 to 2030. By the culmination of the forecasted period, sector revenue may reach $583.69 billion. Therefore, investors should take a long look at these gaming growth stocks to buy.
Take-Two Interactive (TTWO)
One of the top-tier names among gaming growth stocks, Take-Two Interactive (NASDAQ:TTWO) generated its reputation with some gritty titles. This year, TTWO attempts to make up for lost ground, gaining over 6% since the Jan. opener. Unfortunately, in the trailing year, it finds itself underwater to the tune of over 31%.
To be fair, Take-Two presents plenty of risks. For one thing, Gurufocus.com warns its readers that TTWO may be a possible value trap. Objectively, it lacks operational rigor. While its three-year revenue growth rate of 9% rings above average, its operating and net margins sit in negative territory. As well, it doesn’t feature the greatest stability on the balance sheet.
To top it off, the market prices TTWO at a trailing free cash flow (FCF) multiple of 84.07. This stat ranks unfavorably above nearly 87% of the competition. So, why mention it among gaming growth stocks to buy? Mainly, the experts want to give it a chance. Conspicuously, analysts peg TTWO as a consensus strong buy. Also, their average price target of $128.21 implies upside potential of 17%.
Although Microsoft (NASDAQ:MSFT) likely garners the most attention for its business applications such as Word or Excel, it’s also a major player among gaming growth stocks. Thanks to its Xbox video game console, Microsoft commands significant revenue from a viable market. Since the Jan. opener, MSFT gained over 4% of equity value. However, it’s still a work in progress in some regards as it’s down 15% in the trailing year.
However, MSFT should start bouncing higher soon. Notably, Gurufocus.com’s proprietary calculations for fair market value (FMV) suggest that MSFT is actually undervalued. Objectively, its pricing based on trailing and forward earnings suggests it’s near the industry’s median value.
Still, MSFT should attract investors because of its operational strengths. Its three-year revenue growth rate stands at 17.4% while its net margin pings at 33%. Both stats rate among the gaming sector’s upper echelon, particularly its profitability. Further, covering analysts peg MSFT as a consensus strong buy. Their average price target stands at $292.07, implying over 17% upside potential. Thus, it’s well worth considering for gaming growth stocks to buy.
Based in China, Sohu.com (NASDAQ:SOHU) is an internet company. Sohu and its subsidiaries offer an advertising unit, a search engine, and online multiplayer gaming, among other services. A contrarian idea within gaming growth stocks, it also presents high risks. For instance, since the January opener, SOHU stock barely registers in positive territory.
In the past 365 days, SOHU stares at a loss of 24% of equity value. And in the trailing five years, the enterprise lost over 59%. That said, the company delivers some intriguing fiscal attributes. Perhaps most notably, Sohu.com features a strong balance sheet, mainly because it’s unencumbered with debt. Also, Gurufocus.com suggests it’s undervalued. Objectively, the market prices SOHU at 0.44-times book value, which pegs as wildly undervalued.
However, not everything appears optimistic. For instance, its long-term revenue trend prints only average stats. As well, in the past year, its net margin slipped below breakeven. Recently, though, Morgan Stanley’s Alex Poon, while handing out a hold rating, forecasted SOHU to hit $17. If so, this view implies nearly 19% upside potential.
Electronic Arts (EA)
One of the most well-known gaming growth stocks, Electronic Arts (NASDAQ:EA) commands a massive footprint. However, that fact alone doesn’t necessarily make it endearing to its fans. Over the years, Electronic Arts courted several gaming-related controversies. However, despite its ills, the firm’s EA Sports line – imbued undoubtedly with its major sports licensing agreements – makes the enterprise a money-printing operation.
Notably, Gurufocus.com states that per its proprietary FMV calculations, EA represents a significantly undervalued investment. Objectively, the investment resource’s analysis on discounted cash flow (DCF) implies that EA’s fair value sits at $127.66 per share. With a time-of-writing price of just under $111, EA may represent a viable discount.
Operationally, Electronic Arts comes to life. Its three-year revenue growth rate stands at 14.8%, above 66% of the industry. And its net margin comes in at 14.08%, outpacing nearly 76% of its peers. Lastly, Wall Street analysts peg EA as a consensus moderate buy. Moreover, their average price target stands at $133.39, implying over 20% upside potential.
Another China-based name among gaming growth stocks, HUYA (NYSE:HUYA) is a video live-streaming service. It’s one of the largest of its kind in its home market. Further, Huya also operates globally as Nimo TV. Still, it hasn’t impressed much in the new year. Since the Jan. opener, HUYA slipped a bit under parity. In the trailing year, the stock gave up more than 17% of its equity value.
To be sure, Gurufocus.com warns investors that HUYA may be a value trap. Objectively, the market prices shares at 0.63 times the trailing book value. That comes in below nearly 82% of the competition. However, the streaming specialist might not be as terrible as Gurufocus.com suggests it could be. For example, the enterprise enjoys a very robust balance sheet, particularly with its cash-rich account.
Also, Huya’s three-year revenue growth rate stands at 22%, above almost 88% of the competition. Further, its book growth rate during the same period is 19.9%, above 81% of the field. Turning to Wall Street, analysts peg HUYA as a consensus moderate buy. Also, their average price target stands at $5.27, implying almost 23% upside potential.
Probably not the most well-known entity among gaming growth stocks, Playstudios (NASDAQ:MYPS) is a developer and operator of free-to-play casual games for mobile and social platforms. According to its public profile, Playstudios provides its players with an unequaled entertainment experience and its partners with actionable business insights.
Despite an intriguing business profile, MYPS stock will present challenges for risk-averse investors. It’s not so much that it’s a terrible performer. In the trailing year, shares dipped nearly 5%. However, the extreme undulations can be off-putting for anyone not accustomed to choppy trades.
Still, shares used to trade at around $10 before the value imploded following Playstudio’s merger with a special purpose acquisition company (SPAC). From this angle, MYPS could be considered a discount. Financially, I wouldn’t classify Playstudios as particularly impressive. However, it’s worth pointing out that the company features no debt, affording it incredible flexibility during these difficult times. Turning to the Street, covering analysts peg MYPS as a consensus moderate buy. Further, their average price target is $5.25, implying over 41% upside potential.
Sea Limited (SE)
Prior to the inflationary implosion that blasted so many tech firms in 2022, Sea Limited (NYSE:SE) ranked among the most compelling gaming growth stocks to buy. A massive tech conglomerate based in Singapore, Sea features three main business units: e-commerce, financial technology (fintech), and digital entertainment (gaming).
Although its mercurial ascendency from the doldrums of 2020 to the peak of early November 2021 attracted speculators, many rushed for cover as SE began hemorrhaging market value. Although shares popped up 18% since the January opener, they’re far from a recovery phase. For example, in the trailing year, SE gave up almost 51% of its equity value.
Unfortunately, negative profit margins detract from Sea’s enticing narrative. Nevertheless, at some point – perhaps by 2030 or may a year or two later – experts project that the Southeast Asian internet economy will reach a valuation of $1 trillion. That’s one reason to stay motivated. The other? Covering analysts peg SE as a consensus moderate buy. Moreover, their average price target stands at $97.33, implying nearly 56% upside potential.
On the date of publication, Josh Enomoto 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.