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Seeking the elusive undervalued secular growth stocks can feel like panning for gold in a vast desert. Yet, within the Esports realm lies a buried treasure waiting to be unearthed. The Esports industry, projected to escalate by 20.7% annually until 2032, is a shining beacon for those seeking perpetual growth prospects.
While the allure of Esports stocks is undeniable, the current market landscape is littered with overpriced contenders. To navigate this terrain, a discerning eye is needed to spotlight the hidden gems. With a meticulous approach, three Esports stocks stand out as diamonds in the rough, each shimmering with untapped potential.
By employing a methodical screening process focused on growth at a reasonable price (GARP), robust fundamentals, and sound technical features, these stocks have emerged as beacons of opportunity. Furthermore, their diversification benefits promise risk-adjusted return enhancements that savvy investors crave.
Without further ado, let’s dive into the world of Esports and uncover these three undervalued gems waiting to be discovered in March.
Allied Gaming and Entertainment (AGAE)
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Allied Gaming and Entertainment (NASDAQ:AGAE) operates in two key segments: Esports and mobile entertainment. The former caters to live events, promotions, and ancillary offerings for creators, while the latter focuses on mobile gaming development and acquisitions.
What sets Allied apart is its early-stage positioning in a hypergrowth industry. The company’s dual segments offer synergies that enable more comprehensive end-market targeting, setting the stage for exponential growth.
Although Allied is in its infancy, with a modest third-quarter revenue of $1.12 million and yet to achieve profitability, it is poised to tap into demand for proprietary and third-party events in the near future. Moreover, its recent majority acquisition of Chinese firm Zhihe opens the doors to a new market, fueling optimism for future growth and financial consolidation benefits.
Key metrics indicate that AGAE is moderately undervalued, with a price-to-sales ratio of 5.33x, a bargain for a budding firm. Furthermore, its average daily trading volume of approximately 72,080 shares hints at being overlooked by the majority, presenting a prime opportunity for astute investors.
Microsoft (MSFT)
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While not a pure Esports play, Microsoft (NASDAQ:MSFT) is a noteworthy contender in the Esports arena, courtesy of its acquisition of Activision Blizzard. Beyond hardware sales, Microsoft’s foray into Esports presents an intriguing avenue for growth and market expansion.
Amidst its diverse portfolio, Activision Blizzard’s Esports division stands out as a key growth driver. With leagues like Overwatch League™, the Call of Duty League™, and Hearthstone® Masters under its belt, Activision Blizzard taps into a high-growth market and leverages Esports to drive gaming sales and brand visibility.
Reported under Microsoft’s More Personal Computing segment, Activision Blizzard’s financial results contribute to the segment’s $16.9 billion in second-quarter revenue. This Esports connection could amplify Microsoft’s revenue streams, offering investors indirect access to the lucrative Esports landscape.
MSFT stock, a beacon of quality and value, boasts a price-to-earnings ratio of 37.53x, signaling solid growth potential. Its return on common equity ratio of 39.17% underscores the value delivered to shareholders, painting a promising picture for discerning investors.
Enthusiast Gaming Holdings (EGLXF)
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Enthusiast Gaming Holdings (OTCMKTS:EGLXF) operates as a media and promotions company with a distinctive focus on niche markets. Despite its niche appeal, the company has garnered success, boasting a subscriber base exceeding 265,000 paying members.
In the company’s third-quarter earnings report for November 2023, Enthusiast Gaming reported quarterly revenue of $45.56 million, a slight decrease of 10%. However, a positive uptick in gross profit margin to $16.7 million bodes well for future growth prospects.
The revenue dip experienced by Enthusiast Gaming could be attributed to the reopening phase post-pandemic. Yet, with a diverse range of gaming offerings and a supportive end-market environment, the company is primed for a rebound. Additionally, Enthusiast Gaming’s cost-cutting initiatives, aiming for a $10 million reduction, set the stage for margin expansion and brighter days ahead.
Trading at a mere price-to-sales ratio of 0.16x, EGLXF stock appears significantly undervalued. With a three-year compound annual growth rate of 67.04%, the company demonstrates sustained growth potential, mitigating concerns of stunted progress.
On the date of publication, Steve Booyens held an indirect long position in MSFT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Steve Booyens co-founded Pearl Gray Equity and Research in 2020 and has been responsible for institutional equity research and PR ever since. Before founding the firm, Steve spent time working in various finance roles in London and South Africa. He holds an MSc in Investment Banking from Queen Mary – University of London. Furthermore, Steve has passed CFA Levels 1 & 2 and is working toward his Ph.D. in Finance. His articles are published on various reputable web pages such as Seeking Alpha, TipRanks, Yahoo Finance, and Benzinga. Steve’s articles on InvestorPlace form an interesting juxtaposition between mainstream opinion and objective theory. Readers can expect coverage on frequently traded stocks, REITs, fixed-income funds, CEFs, and ETFs.
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