Thursday, August 1, 2013

Why TTWO could spike 50% into September 2013

Why TTWO could spike 50% into September 2013

Take-Two Interactive (TTWO) is the makers of Grand Theft Auto 5, which is one of the most anticipated games of the year. They are fundamentally strong, recently beating earnings estimates (eps +6% and revenue +15% vs. estimates). Although they have reported a net loss in earnings (-0.54 eps) in 2Q13 they beat estimates and have excellent guidance for next quarter 3Q13 (1.53 eps, 789M revenue estimates) reflecting an expected blowout as compared to last years 3Q12 (0.11 eps, 288M revenue); this is largely due to the highly anticipated Grand Theft Auto 5 (GTA 5, September 17 release date), which as already sold a record 800k pre-orders.

From a technical perspective, TTWO's bullish (on all time trames) and clean chart virtually has no technical resistance above 17.84 (its new 52wk high which it reached just after its recent 3Q13 earnings) until the gap it must fill to 20.5 short term, and resistance at 26 longer term.  TTWO has broken resistance on the daily (just yesterday closing at its highest close in almost 5 years), weekly and montly (as it ended the month of July well above its monthly resistance at 17); TTWO is currently trading at 17.53. What is also interesting about TTWO besides its clean chart pattern, is its high short interest (20% shares short) and not to mention, recently, the company approved a buyback of up to 7.5M shares (which accounts for 8% of the shares outstanding).

Risk/Rewards: The best r/r entry would be near 17.0 which is resistance now turned support from virtually all time frames (dialy, weekly, and monthly charts).

Disclaimer: I am long 2300 shares at 17.5 and have plans to buy $35k worth in call options at market open on 8/1/13.

Whats also interesting I find is that, historically, before the release of any new GTA game, TTWO runs up $3-10 from the month prior to the release date. You can add this to the earnings run-up and can expect much excitement about GTA as we approach the September release date.