New Trade for July 30th, 2021

The demand for video games grew significantly as a result of the pandemic. Although people are returning to outdoor activities, the demand for video games is not expected to decline.  In-game purchases and the emergence of 5G technology should also drive the performance of stocks linked to online gaming.     

The global mobile gaming industry is expected to grow at an 11.5% CAGR to $153.50 billion by 2027.  Rising investor optimism in the industry is evident in the Global X Video Games and Esports ETF’s (HERO) 14.6% returns over the past nine months.  The company featured in today’s trade alert is well-positioned to benefit from industry tailwinds in 2021 and for many years to come. 

Israel-based Playtika Holding Corp (PLTK) is a prominent player in the video gaming industry.  The company develops, publishes, and distributes its mobile games to customers worldwide through its proprietary platform and other mobile platforms.

Rising competition in the industry has pushed companies to develop and add captivating games to their platforms to maintain their user bases.  The release of  Sony Corp’s (SONY) PlayStations 5 and the launch of Microsoft’s (MSFT) Xbox Series X/S along with Netflix’s (NFLX) planned expansion into video games has also been incentivizing companies toward innovation and creative development to compete and maintain their user base.  Strategic and conservative management is helping to set Playtika ahead of the herd when it comes to profitability.

On March 11th, the company took on a seven-year $1.9 billion term loan, thereby increasing its revolving credit facility in a strategic move to generate significant savings and reduce its annual cash interest payments by more than $80 million.  The plan should benefit from its net income, EPS, and free cash flow in 2021.  

For Q1, PLTK’s revenue rose 19.6% year-over-year to $638.9 million.  The company’s income from operations came in at $130.30 million, up 15.1% from the previous year.  As of March 31st, the company had $963.8 million in cash and cash equivalents.  PLTK’s levered free cash flow margin value of 23.4% and ROTC value of 22.5% are favorable when compared with the negative values, which are common among Playtika’s competition like Skillz Inc. (SKLZ).

In terms of valuation, Playtika’s 15.75x EV/EBIT value is 14.8% lower than the 18.48x industry average.  Even more impressive, when it comes to profitability, PLTK’s 22.5% trailing 12-month return on capital is 554.1% higher than the 3.4% industry average.  

Of 10 analysts polled, nine rate the stock a Buy, and one rates it a Hold.  There are no Sell ratings for PLTK stock.  A median 12-month price target of $38 represents a 66% increase from its current level.  

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