Stock Pick: Activision Blizzard Inc. (ATVI)

Activision Blizzard Inc. (ATVI) is a developer and distributor of content and services on multiple gaming platforms including consoles, mobile devices, and personal computers. The company is responsible for developing and publishing world renowned games such as Starcraft, Diablo, Warcraft, Call of Duty, Candy Crush, and Overwatch. As of December 2018 calendar year, the company has generated sales of $7.5 billion with a labor force of ~9,000 employees.      

Technical Analysis of Activision Blizzard Inc. (ATVI)

We like ATVI because it looks ripe for bottom picking. The stock has been on a freefall after printing the all-time high of $84.68 in October 2018. It only took the stock four months to lose over 50% of its value as it dropped to $39.85 on February 11, 2019. Needless to say, the stock is badly beaten. At the very least, it is due for a relief rally.  

Technical analysis reveals that ATVI is showing signs that a short-term bottom is likely in. This view comes after it respected support of $40 on February 11. The stock immediately rejected lower prices as it closed the week at $44.60. This was a signal that buyers are emerging.

Technical indicators support this view. First, on the week of February 11, ATVI printed volume that’s over 193% of its weekly average. The significantly elevated volume indicates that a big buyer has likely stepped in to stop the bleeding. The weekly RSI backs up this assumption. We can see a bullish divergence on the weekly chart which is suggesting that the stock is gathering bullish momentum.

However, it is important to note that we are only playing for the bounce. ATVI is still bearish as we have yet to see any trend reversal signals. Thus, it is very likely that the stock will resume its drop after the expected relief rally.

Fundamental Analysis of Activision Blizzard Inc. (ATVI)

In addition to our technical analysis, fundamental analysis also supports our short-term bullish view.

The trailing twelve months price-to-earnings ratio (PE ratio TTM) of ATVI is 15.87. The stock is still undervalued when compared to the 19.63 PE ratio TTM of the games and hobbies industry. On top of that, the current PE ratio TTM is far from its four-year high of 35.704. Considering these figures, ATVI has some room to grow.

However, ATVI reported mixed Q4 earnings while offering less than stellar guidance for the first half of 2019. The company reported an earnings per share (EPS) of $1.29, which is higher than the forecasted $1.28 EPS. On the other hand, ATVI generated revenues of $2.84 billion, which is significantly lower than the projected $3.04 billion. Also, the company announced that it plans to slash its workforce by 8% due to the unexpected drops in net bookings.

The strategy is to buy on dips as close to $40 as possible. As long as bulls hold this level, the stock will likely generate the momentum to bounce to our target of $49.44. Take that out and the next target is $55.28

The timeline for the target is less than six months.

Weekly ATVI Chart


Monthly ATVI Chart


As of this writing, the Activision Blizzard Inc. stock (AVTI) is trading at $42.78.

Summary of Strategy

Buy: On dips as close to $40 as possible.

Targets:  $49.44 and $55.28.

Stop: Close below $38.5.

 

Featured image courtesy of Shutterstock.

Disclaimer: The writer does not own shares of Activision Blizzard Inc. (AVTI).

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, InvestorAcademy.org where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.