eSports: here to stay

You probably don’t need me to tell you that the lockdowns in 2020 have been hugely beneficial to raising the profile of gaming and eSports. With nowhere to go, huge swathes of people (re)discovered their inner gamer to pass the time and make new, digital contacts. If they weren’t playing themselves, they were watching other people do so via streaming service Twitch.

This rapid acceptance and adoption should mean the gaming-related boom keeps going even when the pandemic is over. It’s already been estimated that the global eSports audience will hit 495 million people in 2020.

Other developments that highlight eSports’ growing profile include the involvement of bookmakers. With no opportunities for punters to gamble on ‘traditional’ sports, firms such as William Hill have been taking bets on the outcomes of gaming matches.

Another sign of the times was the launch of talent development company Guild Esports in June. Co-owned by David Beckham, its goal is to find and nurture the next generation of professional players. While certainly not guaranteed to succeed, Beckham joins a growing list of sports stars such as Michael Jordan and Mike Tyson making investments in the video gaming industry. 

Here’s how you can join them.

How to invest

The most direct route into gaming as an investor is to buy a developer. UK-listed candidates include Codemasters, Frontier Developments and Team 17. Another option is ‘picks and shovels’ company Keywords Studios. It specialises in providing a variety of services to the video games industry. 

All of the above appear to be decent businesses with solid futures. The problem, however, is that most trade on frothy valuations due to the recent post-crash buying frenzy seen in the market.

Keywords-excluded, owning shares in a single, gaming-related company can also be risky. Much like a movie studio, a lot of money may rest on a new title living up to the hype. Should it not, some holders won’t hesitate to dump their stock.

Personally, I’m taking a different route.

My preferred pick

The VanEck Vectors Video Gaming and eSports UCITS ETF launched just over one year ago. Tracking the MVIS Global Video Gaming and eSports Index, it gives exposure to 25 companies. Importantly, all of these generate more than 50% of their revenue from the industry. Portfolio holdings include giants such as Nintendo and Tencent. Developer Activision Blizzard also features, as does Electronic Arts.

Based on performance so far, the 0.55% ongoing fee certainly doesn’t seem excessive. From inception (24 June 2019) to the end of July 2020, the fund’s net asset value climbed an astonishing 63%!

Buyer beware

Of course, no investment is a nailed-on home run. There will be setbacks along the way, perhaps in the form of increased regulation. The threat posed by cybercriminals shouldn’t be easily dismissed either. 

With a young, global, increasingly-affluent audience and new consoles (Playstation 5 and Xbox Series X) coming soon, however, the outlook for this coronavirus-proof industry looks rosy. In fact, I think gaming/esports could prove to be one of the best investment themes of the decade.

The post I think eSports could make investors filthy rich. Here’s how I’m playing it appeared first on The Twelfth Magpie.

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Paul Summers owns shares in VanEck Vectors Video Gaming and eSports UCITS ETF. The Motley Fool UK owns shares of and has recommended Activision Blizzard. The Motley Fool UK has recommended Frontier Developments and recommends the following options: long January 2022 $75 calls on Activision Blizzard and short January 2022 $75 puts on Activision Blizzard. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Cheap thrills

Video gaming has been one of the most popular activities for many during the lockdown. This should be great news for UK-listed developers, such as Frontier Developments, Sumo and Team 17. My personal choice in this space, however, is Codemasters (LSE: CDM). 

An expert in the lucrative niche that’s driving games, the firm holds the coveted Formula 1 franchise. It’s also the brains behind the popular DiRT series.

Buying an individual developer arguably takes more guts than buying a ‘picks and shovels’ stock like services provider Keywords Studios. That said, the current valuation of Codemasters surely helps mitigate this risk. Changing hands for 15 times earnings, the stock is also considerably cheaper to acquire than its aforementioned peers.

Aside from the great outlook for the games industry in general, the company has net cash in its balance sheet and will launch the much-anticipated Fast and Furious Crossroads game in 2021.  

Growth play

As both a small-cap investor and customer, I think online musical instrument and equipment retailer Gear4music (LSE: G4M) is another great selection for those with long investing horizons.

Like the video games industry, Gear4music has been a beneficiary of the lockdown. CEO Andrew Wass recently said the company had seen high demand for its products since late March “as an increasing number of people recognise the benefits that playing musical instruments can bring during these difficult times.”

Regardless of the recent boost to business, the company was already growing nicely. Total sales for the year to the end of March came in at £120.3m. Almost half of this (£58.5m) was from outside the UK, giving a good amount of geographical diversification to earnings. In line with the company’s objective, gross margin also recovered over the last year.

Gear4music’s small-cap status means its share price is likely to remain volatile, but the long-term outlook looks very promising. The relentless rise in online retail, coupled with the struggles many independent bricks and mortar instrument sellers are likely to experience going forward, could play right into the minnow’s hands. 

Reassuringly expensive

My final growth pick for today is IT re-seller and services provider Softcat (LSE: SCT). Demand for cloud-based, datacenter and networking and security solutions from organisations will surely only increase post-pandemic.

The FTSE 250 member could be the ideal way of playing this trend. Softcat already generates exceptional returns on the money it invests in itself and, again, boasts very sound finances.

Of course, the fact that the business already trades at a punchy valuation (30 times earnings) could mean it’s hit harder than most if — and that’s a mighty ‘if‘ — markets eventually resume the downward trajectory witnessed in March.

So long as you’re in for years rather than weeks, I can only see the share price going in one direction in time. Perhaps this may be one to buy into regularly, rather than in one fell swoop.

The post Have £3,000? Here are 3 top growth stocks I’d buy for my ISA appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Softcat. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Between 2016 and 2018, shares in the Dublin-base business almost ten-bagged in value — further evidence that finding promising stocks at the smaller end of the market spectrum can seriously grow your wealth over a short period of time. 

Since last September, however, the value of the company has dropped significantly. Despite a small bounce in recent weeks, the share price is still 35% down from its peak. 

As far as I can tell, most of this fall can be attributed to jittery investors jettisoning highly-rated growth stocks from their portfolios and little to do with how the company is performing.

Indeed, today’s full-year results revealed that Keywords continues to do very well. 

Positive outlook

Revenue jumped 66% to a little under €251m in 2018 as the company increased its market share and added new services such as marketing, music management, and predictive analytics. Adjusted pre-tax profit rose by almost the same percentage to €37.9m.

Further good news included a rise in return on capital employed (to a very solid 19.4%) and a 10% increase to the total dividend (to 1.61p).

The outlook was equally positive. 

Keywords stated that it had seen an “encouraging” start to 2019 (with trading in Q1 in line with expectations) and that it has achieved “significant new business gains” which included its first contract wins relating to game streaming.  

As far as the latter is concerned, CEO Andrew Day commented that “the likely increase in demand for content driven by the arrival of games subscription and streaming services from new entrants such as Apple and Google” bodes very well for the company.

Whether now is the right time to buy the stock is, however, less clear.

For one thing, the fairly apathetic reaction to today’s impressive figures implies that recent performance was already priced in. Before markets opened this morning, Keywords shares traded on a high valuation of 28 times forecast earnings.

It’s also worth noting that interest from short sellers has increased.

True, the 3.5% of stock currently being shorted isn’t as much as other growth-focused companies like IQE (7.9%), but it does appear that some are beginning to question whether the acquisition-led strategy the company pursues — and which shows no sign of slowing — could come back to haunt it later down the line.  

Driving profits higher

Of course, there are other options out there for investors looking to tap into the gaming industry as a way to increase their capital.

Developer and publisher Codemasters (LSE: CDM) released a cracking update last week. As a result of strong trading in H2, the small-cap is now expected to report full-year revenues of around £71m.

Even more encouragingly, adjusted earnings are now likely to be somewhere in the region of £18.5m — more than analysts were expecting — thanks in part to the release of driving game DiRT Rally 2.0 in February.

While Keywords offers more earnings diversification (in the sense that its success isn’t reliant on the popularity of a single game it works on), shares in Codemasters also trade on a lower valuation of 18 times forecast earnings.

Assuming the latter is able to grow profits as expected, one might reasonably argue that it represents a better buy at the current time. 

The post This top growth share is really performing. But is all the good news priced in? appeared first on The Twelfth Magpie.

More reading

• With a yield of 6.8% and a P/E ratio of 12.1, is this a dirt cheap FTSE 250 stock to consider?
• Will SpaceX, Nvidia, or Alphabet be the first $10trn stock?
• Up 95%! This FTSE 100 stock’s outperformed Nvidia over the past year
• With a 9.3% yield, is this an amazing opportunity to consider buying dirt-cheap Taylor Wimpey shares?
• How much do you need in a Stocks and Shares ISA to aim for £375 a week in retirement?

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

In contrast, online retailing could deliver further growth. Companies such as Boohoo (LSE: BOO) seem to be well-placed to deliver improving performance as consumers continue to switch from buying in-store to mobile transactions. Alongside another growth stock that operates in an expanding sector and which released an encouraging trading update on Monday, now could be the right time to buy Boohoo.

Improving prospects

The other company in question is video game developer Codemasters (LSE: CDM). It reported that trading in the second half of its financial year has been strong. It expects to report revenue for the 2019 financial year of £71m, while adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) is due to be £18.5m.

This performance is ahead of market expectations, and follows the company’s joint development agreement with Netease, which was announced in January. The company has also experienced growth in digital channels, as well as an earlier than anticipated delivery of technology and support for the Netease project. This is expected to lead to a greater than expected portion of contracted revenue being recognised in the current year.

With the video games industry continuing to grow at a rapid pace, Codemasters could be well-placed to capitalise on its improving prospects. As such, now could be the right time to buy it for the long run.

Growth potential

As mentioned, Boohoo seems to be in a strong position to capitalise on a continued trend of shoppers gravitating towards online channels. Although this is proving to be a gradual process, total global online retail sales are forecast to rise from $2,842bn in 2018 to $4,878bn in 2021. This suggests the pace of growth in the industry is expected to increase, as new technology makes it easier for consumers to not only buy products, but to have them delivered and returned.

Boohoo, of course, is expanding rapidly in a number of growth markets across the world. Recent updates have shown it’s generating impressive sales and profit growth across its various sites, and in a number of different countries. This trend could continue as consumers increasingly move towards purchasing clothing online, rather than in stores.

Since the company’s bottom line is forecast to rise by 25% in the current financial year, it appears to have a strong growth strategy. Despite this, a price-to-earnings growth (PEG) ratio of 1.6 indicates that the company could continue to offer a wide margin of safety. As such, now could be the right time to buy it.

The post Buy-to-let returns are plunging. I’d invest my money in the Boohoo share price instead appeared first on The Twelfth Magpie.

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Peter Stephens has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Of course, it’s not the only share which has disappointed so far in 2018. Reporting on Monday was a smaller company which has lagged many of its industry peers during the same time period. Could it offer turnaround potential alongside Lloyds?

Improving outlook

The company in question is video game developer and publisher Codemasters (LSE: CDM). It reported a relatively positive performance in the first half of its financial year. Revenue of £39.7m was generated during the period, with digital sales as a proportion of revenue continuing to increase. They represented 53% of total sales during the period, with the company’s gross margin being 88.5%.

A net cash position of £17m suggests that the company’s financial standing is relatively sound. It has a pipeline of new products which could catalyse its financial performance, while the release of the annual instalment of its F1 game has been successful. It has received a Metacritic rating of 84%, and has been number one in the sales charts of 11 different countries.

With Codemasters’ share price having fallen by a third since its IPO a few months ago, investor sentiment seems to be downbeat. However, the company appears to be performing well, and with video games set to remain popular it could be of interest to less risk-averse investors.

Low valuation

As mentioned, Lloyds has also been an unpopular share this year. The company’s share price fall means that it now has a price-to-earnings (P/E) ratio of 9.1, while its dividend yield stands at 5.7%. Both figures suggest that there may be a margin of safety on offer at a time when the company is seeking to leverage its dominant position in the UK banking sector.

It is rumoured to be moving ahead with plans for a joint venture with Schroders that will see the two companies work together on a wealth management business. This has the potential to become a highly-profitable business for Lloyds, and could help to grow its earnings at a time when the prospects for the UK economy are somewhat weak.

The bank’s improving balance sheet could provide it with the financial strength to invest in new growth areas, while also offering greater resilience than the stock market is pricing in. As such, now could be a good time to buy, with its long-term outlook appearing to be sound. Given that the chances of a Brexit deal seem to have increased recently, UK shares could become more popular over the medium term.

The post The Lloyds share price has crashed 15% this year, but could it still beat the FTSE 100? appeared first on The Twelfth Magpie.

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Peter Stephens owns shares of Lloyds Banking Group. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.