The entertainment industry has been under pressure due to the macro headwinds and shifting consumer behavior, as inflation hurts discretionary spending. However, gaming remains a mainstream hobby, and the global pandemic has added to that.
New video game devices, combined with the progress of new technologies, are paving the way for potential growth in terms of market value in the coming years. In fact, 2023 will likely be an inflection year as more high-budget, high-profile games and next-generation consoles are lined up to hit the market.
Moreover, with the advent of technology such as virtual and augmented reality, technological trends, and developments, the demand for digital entertainment is growing and will likely continue to bolster the sector’s growth. In addition, the global entertainment and media market is projected to grow at a CAGR of 5.9% from 2022 to 2028.
Therefore, investors looking to buy and hold quality entertainment stocks for 2023 could consider Playtika Holding Corp. (PLTK) and SciPlay Corporation (SCPL). These stocks have sound fundamentals, which might drive their growth this year.
Playtika Holding Corp. (PLTK)
Headquartered in Herzliya Pituarch, Israel, PLTK is a mobile gaming entertainment and technology company with a portfolio of casual and casino-themed games.
On November 21, 2022, PLTK announced the execution of an agreement for a $25 million minority investment in Turkish mobile gaming company Ace Games. “Our investment in Ace Games is an important milestone in the execution of our new games investment strategy as Playtika continues to seek exposure to high-growth potential game IP in cost-effective ways,” said Robert Antokol, Chief Executive Officer of PLTK.
In terms of forward non-GAAP P/E, PLTK is trading at 10.66x, 37.6% lower than the industry average of 17.08x. The stock’s forward EV/ EBITDA and EV/EBIT multiples of 5.22 and 10.27 are 39.3% and 32.5% lower than the industry averages of 8.61 and 15.21, respectively. Also, its forward Price/Cash Flow multiple of 8.41 compares to the industry average of 9.29.
For the fiscal third quarter that ended September 30, 2022, PLTK’s revenue increased marginally year-over-year to $647.80 million. The company’s cash and cash equivalents came in at $1.26 billion, up 23.4% from $1.02 billion for the fiscal year that ended December 31, 2022. Its total assets increased 6.8% to $2.99 billion from $2.80 billion for the fiscal year that ended December 31, 2021.
Analysts expect PLTK’s EPS for the first quarter (ending March 31, 2023) to increase 3.3% year-over-year to $0.21. Its revenue for the fiscal year, which ended December 31, 2022, is expected to grow marginally year-over-year to $2.61 billion. Over the past three months, the stock has gained 10.3% to close the last trading session at $9.63.
PLTK’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, translating to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Value and a B for Quality. Of the 20 stocks in the Entertainment - Toys & Video Games industry, it is ranked #4. To see PLTK’s ratings for Growth, Momentum, Stability, and Sentiment, click here.
SciPlay Corporation (SCPL)
SCPL is a developer and publisher of digital games on mobile and web platforms. The company operates in the social gaming market, offering a variety of social casino games such as Jackpot Party Casino, Gold Fish Casino, Quick Hit Slots, 88 Fortunes Slots, etc., and casual games comprising Bingo Showdown, Solitaire Pets Adventure, and Backgammon Live.
In terms of forward non-GAAP P/E, SCPL is trading at 11.71x, 31.5% lower than the industry average of 17.08x. The stock’s forward EV/Sales multiple of 0.81 is 57.4% lower than the industry average of 1.90. Also, its forward EV/EBITDA multiple of 3.23 compares to the industry average of 10.72.
SCPL’s revenue increased 16.5% year-over-year to $170.8 million in the fiscal third quarter that ended September 30, 2022. The company’s net income and adjusted EBITDA came in at $33.70 million and $42.80 million for the same period. In addition, its total assets came in at $729.10 million for the period ended September 30, 2022, compared to $681.60 million for the period ended December 31, 2021.
SCPL’s EPS and revenue are expected to increase 270.5% and 15.4% year-over-year to $0.33 and $178.10 million, respectively, in the fiscal fourth quarter that ended December 31, 2022.
Shares of SCPL have gained 29.6% over the past year and 23.8% over the past three months to close the last trading session at $16.01.
SCPL’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of A, which equates to a Strong Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Quality. Within the same industry, it is ranked first out of 20 stocks. Click here to see the other ratings of SCPL for Momentum, Stability, and Sentiment.
PLTK shares were trading at $9.52 per share on Tuesday morning, down $0.11 (-1.14%). Year-to-date, PLTK has gained 11.87%, versus a 4.26% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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