Take-Two Interactive Software Inc (TTWO, Financial) recently observed a daily gain of 1.09% and a 3-month gain of 7.6%. Despite these positive movements, the company's Loss Per Share stands at 21.98. This raises an intriguing question: is the stock modestly overvalued? This analysis aims to delve into Take-Two Interactive Software's valuation, providing insights into whether its current market price justifies its financial and business metrics.
Company Overview
Founded in 1993, Take-Two Interactive Software consists of three wholly owned labels: Rockstar Games, 2K, and Zynga. As one of the world's largest independent video game publishers, Take-Two Interactive Software operates across consoles, PCs, smartphones, and tablets. Its renowned franchise portfolio includes Grand Theft Auto, NBA 2K, Civilization, Borderlands, Bioshock, and Xcom, with popular Zynga mobile titles like Farmville, Empires & Puzzles, and CSR Racing.
With a market cap of $27.20 billion and annual sales of $5.30 billion, Take-Two Interactive Software's financial position is significant yet challenged by an operating margin of -21.38% and a Return on Invested Capital (ROIC) of -8.03%. The stock's current price of $158.51, when compared to the GF Value of $141.61, suggests that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a proprietary measure calculated by GuruFocus. It estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor from past performance, and future business performance expectations. This valuation suggests that if Take-Two Interactive Software's stock price significantly exceeds the GF Value, its future return might be lower compared to its business growth.
Currently, Take-Two Interactive Software's stock price exceeds its GF Value, indicating a potential overvaluation. Investors should consider this when evaluating the long-term return potential of their investments.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to mitigate the risk of capital loss. Take-Two Interactive Software's cash-to-debt ratio of 0.22 ranks below the industry average, positioning its financial strength at a moderate level according to GuruFocus metrics. This aspect is vital for investors seeking stable and secure investment opportunities.
Profitability and Growth Prospects
Profitability is often a cornerstone of investment decisions. Take-Two Interactive Software has maintained profitability over the past decade, but its operating margin and ROIC suggest potential challenges ahead. The company's growth metrics, such as a 3-year average annual revenue growth of 2.6%, also indicate slower growth compared to industry peers.
Moreover, comparing the ROIC to the Weighted Average Cost of Capital (WACC) provides insights into value creation for shareholders. Currently, Take-Two Interactive Software's ROIC is lower than its WACC, suggesting that it is not generating sufficient returns relative to its capital costs.
Conclusion
In summary, Take-Two Interactive Software Inc (TTWO, Financial) appears modestly overvalued based on its current market price relative to the GF Value. While the company holds a strong position in the interactive media industry, its financial metrics and growth prospects should be carefully evaluated. For a detailed exploration of Take-Two Interactive Software's financial history and performance, interested investors can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
