Herzliya, Israel-based mobile-games developer Playtika Holding Corp. (PLTK - Get Rating) is currently trading 39.4% below its 52-week high of $30, which it hit on Nov. 2, 2021. However, the company recently reported solid fourth-quarter earnings in which its revenues and EPS beat the Street’s estimates by 1.3% and 38.9%, respectively.

However, the company’s board of directors recently initiated a process to evaluate its potential strategic alternatives to maximize value for their stockholders, including a sale of the company or other possible transactions.

The stock has gained 5.1% in price year-to-date to close yesterday’s trading session at $18.17. Furthermore, a rising consumer base, with people spending more time at home, makes its near-term prospects look bright.

Here is what I think could influence PLTK’s performance in the coming months:

Robust Financials

PLTK’s revenues increased 13.2% year-over-year to $649 million in the fourth quarter, which ended Dec.31, 2021. Its total assets grew 57.8% year-over-year to $2.80 billion, while its net income came in at $102.30 million, representing a 34.6% year-over-year increase. Also, its EPS was $0.25, up 31.6% year-over-year.

Favorable Analyst Estimates

For its fiscal quarter ending March 31, 2022, analysts expect PLTK’s EPS and revenue to grow 155.6% and 17.4%, respectively, year-over-year to $0.23 and $681.88 million. In addition, its EPS is expected to grow at 22.9% per annum over the next five years. Furthermore, Wall Street analysts expect the stock to hit $26.63 in the near term, indicating a potential 46.6% upside.

High Profitability

In terms of  trailing-12-month asset turnover ratio, PLTK’s 1.13% is 152% higher than the 0.45% industry average. Likewise, its 21.61% trailing-12-month EBIT margin is 125.9% higher than the 9.57% industry average. Furthermore, the stock’s trailing-12-month ROTC and ROTA of 21.07% and 11%, respectively, are higher than the 3.96% and 3% industry averages.

Discounted Valuation

In terms of forward non-GAAP P/E, PLTK’s 15.44x is 14% lower than the 17.94x industry average. And its  14.02x forward EV/EBIT is 11.6% lower than the 15.85x industry average. Also,  the stock’s 8.87x forward EV/EBITDA is 4.3% lower than the 9.26x industry average.

POWR Ratings Show Promise

PLTK has an overall A rating, which equates to a Buy in our POWR Ratings system. The POWR Ratings are calculated by accounting for 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. Among these categories, PLTK has a B grade for Value, which is in sync with its lower-than-industry valuation ratios.

The stock has a B grade for Quality, which is in sync with its higher-than-industry profitability ratios.

Beyond what I have stated above, we have also given PLTK grades for Growth, Momentum, Stability, and Sentiment. Get all the PLTK ratings here.

PLTK is ranked first among  23 stocks in the Entertainment – Toys & Video Games industry.

Bottom Line

PLTK reported impressive fiscal fourth-quarter results despite being in a highly competitive industry with low barriers to entry. It is well-positioned to benefit from the strong demand. So, we think it could be wise to buy the stock at the current discounted valuation.

How Does Playtika Holding Corp. (PLTK) Stack Up Against its Peers?

PLTK has an overall POWR Rating of A. One  could also check out these other stocks within the Entertainment – Toys & Video Games industry with a B (Buy) rating: DoubleDown Interactive Co., Ltd. (DDI - Get Rating), Spin Master Corp. (SNMSF - Get Rating), and Electronic Arts Inc. (EA - Get Rating).

PLTK shares were trading at $18.42 per share on Tuesday morning, up $0.25 (+1.38%). Year-to-date, PLTK has gained 6.54%, versus a -5.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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