You’ve come to the right place if you’re looking for undervalued secular growth stocks. This article focuses on Esports stocks. The Esports industry is set to grow by 20.7% annually until 2032, providing a perfect base to its constituents for perpetual growth prospects.
Esports stocks are an excellent way to access secular growth. However, their “hot stock” status means many are overbought. As such, I decided to assist my readers by zoning in on the Esports industry and picking out three stocks that have yet to reach their full potential.
Methodologically, I screened for stocks with growth at a reasonable price (GARP) alignment, robust fundamentals, and sound technical features. Moreover, I picked out stocks with diversification benefits to introduce risk-adjusted return enhancers.
With all that being mentioned, here are three undervalued Esports stocks to buy in March.
Allied Gaming and Entertainment (AGAE)
Allied Gaming and Entertainment (NASDAQ:AGAE) functions through two segments, namely Esports and mobile entertainment. The former offers live events, promotions, and ancillary offerings to creators, whereas the latter emphasizes mobile gaming development and acquisitions.
The allure of Allied is its early-stage positioning in a hypergrowth industry. Moreover, Allied Gaming and Entertainment’s two segments provide cross-sales synergies, allowing for more comprehensive end-market targeting.
Allied is still in a very early stage of development. The company produced merely $1.12 million in third-quarter revenue and has yet to reach profitability. However, the firm is set to tap into proprietary and third-party event demand in the coming years. In addition, Allied recently completed a majority acquisition of Chinese firm, Zhihe, allowing it access to a new market and benefits from financial statements consolidation.
Key metrics suggest AGAE is moderately undervalued. For example, its price-to-sales ratio is 5.33x, which is low for an early-stage firm. Moreover, AGAE’s three-month average daily trading volume of about 72,080 shares indicates it remains overlooked by most investors.
Microsoft (MSFT)
Although not a pure play, Microsoft (NASDAQ:MSFT) is another Esports name to watch. Microsoft gained access to the industry via its acquisition of Activision Blizzard. An additional argument can be made that Microsoft’s hardware sales will benefit from the growing Esports environment. However, that’s a conversation for another day; let’s stick to Microsoft’s direct Esports endeavors.
As most know, Activision Blizzard is much more than an Esports entity. However, its ESports division is gaining significant traction. The company’s Esports leagues span Overwatch League™, the Call of Duty League™, and Hearthstone® Masters, to name a few. Activision’s Esports league provides access to a high-growth market and enables it to leverage its Esports end market into gaming sales. In essence, it’s a marketing strategy that earns money.
Activision Blizzard’s financial results are reported in Microsoft’s More Personal Computing segment, which generated $16.9 billion in second-quarter revenue. Esports can certainly have a material impact on Microsoft’s broad-based revenue, providing investors with indirect access to the phenomenon.
MSFT stock is a high-quality value stock. The stock’s price-to-earnings ratio of 37.53x might seem high to many. However, MSFT stock’s return on common equity ratio of 39.17% illustrates the abundance of value received by shareholders.
Enthusiast Gaming Holdings (EGLXF)
Enthusiast Gaming Holdings (OTCMKTS:EGLXF) is a media and promotions company with an ultra-niche business model. Nonetheless, its business model has proven successful, as evidenced by its more than 265,000 paying subscriber base.
The firm reported its third-quarter earnings in November 2023. Enthusiast Gaming achieved $45.56 million in quarterly revenue, decreasing by 10%. However, its gross profit margin ticked up by 1% to $16.7 million.
Enthusiast Gaming’s year-over-year revenue retracement most likely occurred due to pandemic reopenings, but its breadth of game offerings paired with supportive end-market growth could result in a subsequent recovery. Moreover, Enthusiast Gaming has embarked on a $10 million cost-cutting program to achieve margin expansion. As such, it’s safe to conclude that better days are ahead for this Esports stock.
EGLXF stock has a price-to-sales ratio of merely 0.16x, suggesting it is relatively undervalued. Moreover, the company sports a three-year compound annual growth rate of 67.04%, phasing out any risks of busted growth.
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.
