The CEO of Take-Two believes his action is of deep value. Is he right ?
Take-Two Interactive (NASDAQ: TTWO) had a strong quarter, with net bookings exceeding management expectations and increasing 3% year-over-year to $ 985 million. The title is up 4.3% the day after the results.
One of the notable highlights of the earnings report was the disclosure that Take-Two bought back $ 200 million of its own shares during the quarter at an average share price of $ 158.67. This is great news because, unlike most buyback companies, Take-Two does not have a stock buyback program on an ongoing basis.
“This is the first time in more than two years that we have repurchased our shares, underscoring the deep value we have seen in our stock price,” said CEO Strauss Zelnick during the earnings call.
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For investors looking for a good reason to buy this top gaming title, there is nothing quite like getting the approval of the big boss who knows the business inside and out. Here is why this latest buyout might prove timely, once again.
Take-Two buybacks point to good returns
Zelnick has an excellent track record when it comes to share buybacks. The company bought back shares around the launch of Grand Theft Auto V during fiscal year 2014 (ending in March). The stock is up 773% since then.
It repurchased $ 26 million of shares in fiscal 2016, $ 154 million in fiscal 2018, and last repurchased $ 362 million in fiscal 2019.
Of course, the stock has continued to appreciate for the past three and a half years, up 96% at the time of writing. If the stock was underperforming during this time, it would mean that management could have wasted money buying expensive stock instead of allocating it to better opportunities. So far, Zelnick has an exemplary track record with his timing, so investors should take Take-Two’s buyouts seriously.
The only criticism I have about Take-Two buybacks is that the average number of diluted shares outstanding has increased by 1.64% since fiscal 2014. Ideally, share buybacks should reduce shares. outstanding over time, and therefore increase the Company’s per share value. Take-Two didn’t really accomplish this.
Still, Take-Two’s share buybacks have been a reliable indicator of where the company is heading, and there are plenty of fires in the oven to generate growth within the video game industry from. $ 233 billion.
Take-Two expects record operating results in a few years
During the last quarter, Take-Two has seen a constant commitment to its main franchises, such as NBA 2K, Grand Theft Auto V, and Grand Theft Auto Online.
Take-Two has a large pipeline of new releases expected to take effect from fiscal 2023. While reservations and operating cash flow are expected to be down this fiscal year, management expects what bookings return to growth in fiscal 2023, as well as record profits. .
The stock fell to a low of $ 144 with the massive sell-off of video game stocks this year, but Take-Two rallied sharply over the past month, up 20% to $ 190 at the time of the launch. writing.
On the surface, the stock looks expensive, trading at a price-to-earnings (P / E) ratio of 42 based on FY2022 earnings estimates. However, looking ahead to FY2023 estimates, the P / E drops to 29.
Considering the long-term growth Take-Two is expected to experience from its planned list of 62 stocks, I see the latest share buyback as a green light to buy shares.
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John Ballard has no position in the stocks mentioned. The Motley Fool owns shares and recommends Take-Two Interactive. The Motley Fool recommends the following options: $ 115 long calls in January 2023 on Take-Two Interactive. The Motley Fool has a disclosure policy.
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