Will Take-Two Interactive Continue This Bullish Run?

With shares of Take-Two Interactive (NASDAQ:TTWO) trading around $18, is TTWO an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Take-Two Interactive is a developer, marketer, and publisher of interactive entertainment for consumers worldwide. The company develops and publishes products through its two wholly owned labels Rockstar Games and 2K, which publishes its titles under the 2K Games, 2K Sports, and 2K Play brands. Its products are designed for console gaming systems, handheld gaming systems, and personal computers, including smartphones and tablets. It delivers its products through physical retail, digital download, online platforms, and cloud streaming services. Rockstar Games is the developer and publisher of the brand Grand Theft Auto as well as other franchises, including L.A. Noire, Max Payne, Midnight Club, and Red Dead.

Recently, Take-Two Interactive announced record-setting first day retail sales of Grand Theft Auto V that exceeded expectations. Sell-through for the September 17 release exceeded $800 million worldwide, not including upcoming launches in Brazil and Japan, setting new records for Take-Two Interactive and the series. The retail figure translates to roughly $640 million wholesale, or around 12 million units, given higher foreign prices. First-day sales exceeded GTA IV sales, roughly $310 million, due in part to a much larger current console installed base, and topped Activision Blizzard’s (NASDAQ:ATVI) recent Call of Duty games. Last year’s Call of Duty: Black Ops 2 sold over $500 million, while Call of Duty: Modern Warfare 3 sold over $400 million in North America and the UK.

T = Technicals on the Stock Chart Are Strong

Take-Two Interactive stock has been surging higher over recent quarters. The stock is now trading near high prices not seen since early 2008. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Take-Two Interactive is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

TTWO

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Take-Two Interactive options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Take-Two Interactive Options

52.01%

86%

85%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Flat

Average

November Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Take-Two Interactive’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Take-Two Interactive look like and more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

45.38%

132.94%

312.50%

73.68%

Revenue Growth (Y-O-Y)

-36.91%

102.20%

75.93%

155.10%

Earnings Reaction

3.35%

0.91%

14.06%

0.53%

Take-Two Interactive has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been upbeat about Take-Two Interactive’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Take-Two Interactive stock done relative to its peers, Electronic Arts (NASDAQ:EA), Activision Blizzard (NASDAQ:ATVI), Microsoft (NASDAQ:MSFT), and sector?

Take-Two Interactive

Electronic Arts

Activision Blizzard

Microsoft

Sector

Year-to-Date Return

70.66%

82.16%

60.08%

23.40%

42.73%

Take-Two Interactive has been a relative performance leader, year-to-date.

Conclusion

Take-Two Interactive is a developer and provider of interactive entertainment for the use in gaming systems, personal computer, smartphones, and tablets worldwide. The company is reportedly seeing stronger than expected sales from its latest release, Grand Theft Auto V. The stock has been surging higher in recent quarter and is currently trading near multi-year highs. Over the last four quarters, earnings and revenues have been on the rise which has produced upbeat investors. Relative to its peers and sector, Take-Two Interactive has been a year-to-date performance leader. Look for Take-Two Interactive to OUTPERFORM.

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