While the recurring revenue model is one that can often lead to steady profits and returns for investors, a truly great company can essentially sell the same product repeatedly, marking up profits on top of profits.
That’s the case with Take-Two Interactive (TTWO). The video game development company has seen shares surge on new that it’s remastered three of its classic Grand Theft Auto games.
Players new and old alike are potential buyers, thanks to upgraded graphics and a repackaging for current-generation consoles.
While shares have performed well in the past week on the news, the stock is still flat over the past year and is now coming off a steep decline in the coming months.
Action to take: Investors may like shares, as earnings have been growing 72 percent over the past year, and are likely to move higher. And reselling a game that’s already been developed won’t lower the company’s 19 percent profit margin. Just don’t expect a dividend right now.
With shares back into rally mode, a call option looks attractive here. The March $195 calls will give the company time to report its sales numbers in the upcoming earnings season. Last going for about $8.00, traders can likely nab mid-to-high double-digit gains in the months ahead.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.