Are video game stocks about to power down? Between a closely watched measure of sales, and a bearish technical picture for the stocks, investors in companies like Take-Two Interactive might soon wish that they had passed the controller earlier.
Video game sales numbers for March are set to be released by NPD on Thursday after the market close, and the topline result could sound like a serious disappointment. In a recent note, Cowen analyst Doug Creutz forecast that NPD will show a 26 percent year-over-year drop in console and hand-held software sales.
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He adds, however, this is only due to a difficult comparison with last March, which isn't helped by the fact that Easter falls in April this year after falling in March last year. Generally, the month with Easter enjoys stronger sales, perhaps due to people buying video games as gifts, according to Cowen.
The sales numbers are expected to be especially rough for Take-Two. Given that the company has not released any new games this March, but released both "Bioshock Infinite" and "MLB 2K13" last March. Creutz expects to see Take-Two's sales drop 63 percent from the year prior. However, he maintains a "market perform" rating on the stock, with a price target of $20.
For Richard Ross of Auerbach Grayson, however, the charts are forecasting something very different.
"It's a name that's performed exceptionally well, and I think it's time to take some profits if you're fortunate enough to have gains here," Ross said. "This is not a group that you want to chase."
After shares of Take-Two appreciated by nearly 60 percent from June to March, the shares traded into a dangerous "double top" pattern, Ross said. At this point, he predicts that the stock will fall to its 200-day moving average at $18.23—about 9 percent below current levels.
On the fundamental side, Gina Sanchez of Chantico Global is not particularly bullish herself. But she does spy one bright point.
"In times like this, you really have to look at what's going to be the most defensive franchise," Sanchez said. "Either you go for the best franchise or the cheapest. The best franchise, in my opinion, is Activision. The cheapest, however, is going to be Take-Two."