I think this AIM-listed video games company could be a bargain

Shares in Codemasters, the AIM-listed video games company have fallen dramatically in recent weeks. There is a good reason for the fall but I think there is even better reason to consider buying the stock.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Up until a few weeks ago, Codemasters (LSE:CDM) shares had enjoyed quite the ride, increasing by almost half between November last year and February.

Then the Covid-19 crisis happened. Shares have reversed all the gains seen in the previous three months.

That may strike you as odd. Aren’t video games supposed to one of the products in high demand at the moment, as kids and indeed big kids, stay at home?

The reason for the fall is that one of the big Codemasters games lined up for this spring was Fast & Furious Crossroads, designed to complement the latest Fast and Furious movie. The movie release has been delayed, leaving a question mark over when the game will be available.

Codemasters had acquired the rights to the video games project after purchasing Slightly Mad Studious for $30m — mostly in the form of hard cash. So you can see why the share price collapsed.

The other big product

Codemasters is not a one-product company. It is not even a one ‘high profile licence’ company. It also has the exclusive rights to publish FIA Formula One World Championship.

I think the markets have over sold Codemasters for four reasons.

Firstly, because video games are going to be very popular this year.

Secondly, I think the absence of Formula 1 during the Covid-19 crisis will mean that the Codemasters game will offer racing fans an alternative.

Thirdly, Formula 1 itself is launching a series of F1 eSports. This will entail a series of virtual races instead of the actual races. These days eSports, when fans watch video games players compete with each other, are big business. The F1 series virtual series will be broadcast over the internet and will be based on the Codemasters game. This is a big deal for the company.

The fourth reason is that it was only quite recently that Codemasters announced a major shift to supplying its products digitally as opposed to in disc formats. This means the company’s margin has increased substantially. More to the point, in these difficult times, customers want digital games that they can play without having to go to a store or order online.

The upside may be worth more than the downside 

I think that that the share price is not allowing for the above factors. I expect Codemasters games to be very popular over the next few months.

Also, bear in mind that the company hasn’t lost the Fast and Furious licence. The product’s release will probably be delayed, but not cancelled.

I think the markets have sold because of the bad new and ignored the good news. That’s good news in the context of this company, of course. At a human level, I don’t think there is any good news at the moment.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Michael Baxter has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s the Vodafone share price forecast up to 2027

Can anything stop the Vodafone share price slide? It's still early days for the company's turnaround plan, so we might…

Read more »

Investing Articles

Down 37%, here’s one of my favourite FTSE 100 bargain shares to consider

This FTSE 100 retailer's shares have collapsed in 2024. Despite tough trading conditions, is now the time to consider buying…

Read more »

Investing Articles

Which do I like best today, Nvidia or Tesla stock?

EV maker Tesla stock is on the up, while Nvidia growth is softening a bit. But they're both in the…

Read more »

Investing Articles

After jumping 15%, my favourite FTSE 250 stock looks set for the premier league

Games Workshop stock recently reached an all-time high, placing it within touching distance of promotion from the FTSE 250.

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

1 top growth stock on my Christmas buy list!

Ben McPoland reveals one top-notch growth stock down 29% that he plans to stuff into his portfolio in time for…

Read more »

Growth Shares

This FTSE 250 stock soared 9% yesterday! Is the party just beginning?

Jon Smith points out a FTSE 250 stock that leapt based on some speculation yesterday, but questions whether to get…

Read more »

Investing Articles

£10k in savings? These 2 gems could make £832 in passive income

Jon Smith outlines a couple of dividend shares with an average yield above 8% that could enhance a passive income…

Read more »

Growth Shares

This major UK bank just updated the forecast for the Rolls-Royce share price

Jon Smith talks through an analyst forecast for the Rolls-Royce share price and explains why he thinks further gains could…

Read more »