Motley Fool: Game on

The stock of video game titan Activision Blizzard (Nasdaq: ATVI) has soared about 73% since “Call of Duty: Mobile” launched in October 2019. But over the four years through the end of 2020, Activision Blizzard’s revenue increased at a compound annual rate of only 5.2%. It may not look like a growth stock right now, but change is afoot.

The company is benefiting from a shift to digital distribution (such as subscriptions and in-game sales): Digital content doesn’t require manufacturing, packaging or distribution, and therefore boosts profit margins. New content releases will be another growth driver for Activision Blizzard, along with growing user engagement and increasing revenue per user.

Two of Activision Blizzard’s top franchises – “Call of Duty: Warzone” and “World of Warcraft” – are among the most-watched games on Amazon’s game-streaming platform, Twitch; average monthly concurrent viewers nearly doubled year-over-year in the last quarter, to 2.9 million. The company’s other properties include “Candy Crush,” “Overwatch,” “Hearthstone” and “Diablo.”

Activision Blizzard boasts leading franchises in an industry that’s been growing for decades. It has a deep pipeline of growth initiatives within its most popular franchises. Consider adding some shares to your long-term portfolio. (The Motley Fool owns shares of and has recommended Activision Blizzard.)

Ask the Fool

Q: How does one determine a stock’s real value? – C.F., Chubbuck, Idaho

A: You’re right to note that a stock’s current price is not necessarily equal to its intrinsic (sometimes called fair) value. Overenthusiastic investors may have bid the price up into overvalued territory, or it may be languishing at an undervalued level due to a lack of investor interest or confidence. Seeking and investing in undervalued high-quality companies is a smart strategy.

Determining a stock’s fair value is easier said than done, though, and skilled analysts will often arrive at different estimates. Some will use complicated “discounted cash flow” analysis, estimating future free cash flows and assigning them present values based on chosen discount rates. (In other words, this will still be an educated guess.)

Most of us individual investors favor simpler ways to estimate a stock’s valuation. The price-to-earnings (P/E) ratio, which divides the current stock price by the last 12 months of earnings per share, is one of many useful tools: The lower the P/E ratio, the more attractive the price. (Though it’s important to remember that P/E ratios vary by industry.)

Don’t rely on any one valuation or stock assessment method alone, though. Dig deeply into any company you’re considering for your portfolio.

Q: How large are “large-cap” companies. and how small are “small-cap” ones? – P.J., Tarentum, Pennsylvania

A: There’s no single definition, but here’s a common one: Consider companies with market capitalizations below $300 million to be micro-caps; between $300 million and $2 billion, small-caps; between $2 billion and $10 billion, mid-caps; between $10 billion and $200 billion, large-caps; and above $200 billion, mega-caps.

For some current examples, Wendy’s is a mid-cap, while Starbucks is a large-cap and Pfizer a mega-cap.

My dumbest investment

My dumbest investment was buying a vacation timeshare. – N.E., online

The Fool responds: While there are certainly happy timeshare owners out there, there are also many, like you, who regret their purchases.

Buying a timeshare involves forking over a lump sum, usually with annual maintenance fees also required, in exchange for partial ownership in (or just the right to use) a property or group of properties. (Sometimes it’s for a specific unit in a property; often it’s not.) Maintenance fees are charged whether or not you use your unit(s), and they tend to rise over time. Your share entitles you to use the property or properties for a certain length of time and frequency – often one week per year. Some timeshares allow you to rent or sell your share, while others forbid that.

The Federal Trade Commission website FTC.gov has a page of warnings titled “Timeshares, Vacation Clubs and Related Scams.” It notes that sales pitches for timeshares – the industry is known for very pushy salespeople – may present them as investments, but they’re not investments. Think of them only as vacation plans, and know that they often fall in value over time.

It can be very hard to get rid of a timeshare – there’s even a niche industry of companies specializing in extracting people from them, though some of them are scams, too. Do deep research before buying into a timeshare.