The video game industry grew by about 10% per year in 2020 as demand for the Covid-1 lockdown lockdown gaming increased. But it would be wrong to write it off as a temporary geo and expect sales to stop.
Indeed, the industry has been growing at an alarming pace over the past decade, with massive growth in mobile gaming. And forecasts say the market should expand strongly (Statista analysts now forecast a compound annual growth of 9.3% by 2025).
I bought a game development service provider Keyword Studio To make money from this rise. And I’m thinking of snapping the software developer Team 17 groups (LSE: TM17) too. It was one of the best growth stocks to buy in the last few years. And Citi analysts think the bottom line here is that the line will stretch strongly. Annual earnings are forecasted at 4% and 10% for 2021 and 2022, respectively.
Team 17 builds games for all major consoles as well as PCs and the fast-growing mobile gaming market. It has a packed IP portfolio that includes income-driving franchises Worms, The Escapists And Extra cooking! These franchises are extremely helpful for money-spinning sequels, spin-offs and similar universal extensions. Encouragingly, Team 17’s product pipeline is now filled with a wide array of gamers ’choices.
Finding a piece of the video games market is a good idea because it is suitable for market consolidation. Acquisition activities in the industry are heating up and in recent days, Electronic Arts Snatching Golf Clash-Creator Playdemic for 1.4bn. It follows the former occupation of the American giant London Stock Exchange Share and racing game expert codemasters return in February.
Another UK growth stock, Sumo Group, Is also in the process of being acquired by Tencent of China. The agreed fee stood at উত্ত 900m and offered a premium of 43% of the UK developer’s share price before the contract was announced. Could Team 17 be the next indie developer in the chopping block?
Another rising stock I want to buy
So Team17 is a raft of popular products in an industry that is growing very fast. This does not mean, however, that it guarantees a blockbuster shareholder return. E.g. CD project Shown with its destructive introduction Cyberpunk 2077 Last year, a new game launch may have had a lot of promise but development issues could leave a big hole in the profit column.
What’s more, at current prices, Team 17 trades in a forward-to-price (P / E) ratio of about 40 times. Such a high quality can happen – as in last year’s CD project – if there really is a development or trading problem, the share price drops drastically.
That said, high-income multipliers like this are common in technology growth stocks. I certainly paid a pretty premium for my Keyword Studio shares. And I was happy to see its horrible long-term profit outlook.
All things considered, I think Team 17 could be one of the best growth stocks to buy today.
Ryston owns shares in Wild Keyword Studios. Motley Fool UK is recommended by Electronic Arts and Keywords Studio. The opinions expressed in the companies mentioned in this article may differ from those of the authors and therefore the official recommendations we make on our subscription services such as Share Advisors, Hidden Winners and Pro. Here at The Motley Flower we believe that considering a variety of insights makes us a better investor.