The ever-evolving video game industry continues to thrive and remains the fastest-growing area of the entertainment industry.
The World Economic Forum claims that the video game industry is “booming” and cites a report forecasting that worldwide sales will reach $321 billion by 2026. Today, three billion people globally are regular gamers, representing nearly 40% of the world’s population.
Today, people game through their laptop computers, TV sets, smartphones, and tablets. Online gaming is a particularly hot market. The number of professional gamers who compete for money is growing exponentially, along with the audience watching the competitions.
With video games surging by leaps and bounds, check out these three most undervalued gaming stocks to buy in September 2023.
Undervalued Gaming Stocks: Electronic Arts (EA)
Despite the boom in tech stocks this year, shares of Electronic Arts (NASDAQ:EA) have barely budged. Since January, EA stock has risen 0.20%. Over five years, the share price is up only 8%.
The stock is currently trading nearly 20% below its all-time high and has been moving sideways for almost four years. This is a bit surprising given that Electronic Arts produces best-selling video game franchises such as The Sims and Medal of Honor.
Of course, EA is best known for its line of sports video games, including the hugely popular Madden NFL series. Electronic Arts stock is being held back because of increasing fragmentation in the overall video game market. In addition, stock has taken a hit due to a growing trend towards online gaming and a move away from consoles like PlayStation. Another factor is an overall decline in consumer spending on video games since the pandemic. Still, the median price target on EA stock among 24 analysts who cover the company is 16% higher than the current levels.
Take-Two Interactive (TTWO)
On the surface, shares of Take-Two Interactive (NASDAQ:TTWO) look healthy, having increased 41% year-to-date (YTD). Upon further inspection, the picture dims.
Even with this year’s big run, TTWO stock is up a mere 8% since 2018 and 30% below its all-time 2022 high. Like Electronic Arts, Take-Two Interactive makes some of the biggest video game franchises in the world, including Grand Theft Auto and Red Dead Redemption. It also makes popular sports titles such as NBA 2K and a game based on professional wrestling.
The stock took a big hit in the “tech wreck” of 2022 when nearly all video game securities were dragged lower. However, the company is also struggling under the weight of some costly acquisitions it made. Those include its $12.7 billion takeover of rival video game maker Zynga. That deal resulted in Take-Two posting a net loss of $1.2 billion in 2022. Going forward, the company’s financial health should improve. The median price target on TTWO stock is currently 10% higher than where the shares are trading right now.
Undervalued Gaming Stocks: Microsoft (MSFT)
This recommendation is predicated on Microsoft’s (NASDAQ:MSFT) $68 billion acquisition of video game maker Activision Blizzard (NASDAQ:ATVI) being successfully concluded.
It’s been an arduous journey for Microsoft to convince regulators around the world to green-light its takeover of Activision. But if successful, the deal will provide a huge boost to Microsoft’s Xbox gaming division. It will also vault it to the forefront of video game publishers worldwide, driving sales of its Xbox gaming console.
Activision Blizzard brings with it popular video game series such as Call of Duty, World of Warcraft, and Tony Hawk’s Pro Skater. Concerns that a takeover of Activision Blizzard will give Microsoft an unfair competitive advantage has led regulators to closely scrutinize the deal. However, Microsoft won a court hearing against the U.S. Federal Trade Commission (FTC) that had sought to block the deal. The company recently made changes to appease regulators in the United Kingdom, paving the way for eventual approval.
MSFT stock is up 40% this year, but its gains have trailed those of other mega-cap tech stocks. The median price target on the stock is 20% higher than current levels.
On the date of publication, Joel Baglole held a long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines
