Gaming stocks now worst-performing sector of 2021

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It looks like playtime is over when it comes to investing in gaming stocks. After some strong performances throughout 2020, gaming businesses have had a poor year so far. Could this be game over?

Read on to find out what’s going on with this industry and whether it will recover, or whether the slump will continue.

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What are gaming stocks?

This investing sector involves businesses that are all about video games. This isn’t just limited to the games themselves. It also includes areas such as:

  • Mobile games
  • Graphics card manufacturers
  • Video game streaming
  • Gaming hardware

When it comes to gaming, there is a lot of surrounding technology. It’s an industry that’s constantly developing. This provides a lot of investment opportunities for people wanting a slice of the profits and growth.

Why have gaming stocks performed so poorly?

Saxo Markets’ gaming basket has had a tough year so far. So much so that it has been the worst-performing sector, with a year-to-date return of -14.7%.

The coronavirus pandemic lockdowns led to good business for gaming firms. Some people found themselves stuck at home with more time and money on their hands. As a result, video games became a popular choice for whiling away months of isolation.

But now that economies around the world are opening back up, many of us have less time and money to spend on things like video games. This is having a dampening effect on gaming revenues and profits.

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What’s next for gaming stocks?

Peter Garnry, head of equity strategy at Saxo Group, explains the current situation for gaming and what may lay ahead: “Our gaming theme basket is the worst-performing theme this year, down 14.7%, driven by a moderation of gaming consumption driven by the reopening of economies as vaccines are rolled out and employment is soaring.

“Despite some moderation in gaming consumption and investors taking profit, the long-term outlook remains strong with a recent PwC report highlighting that gaming and e-sport growth is expected to grow 32% between 2021 and 2025.”

“With gaming being very profitable for those with hit games, the profit margins are luring new entrants into the industry. Netflix is branching into gaming with its large user base, which could increase competition for other existing companies and squeeze smaller players with less distribution.”

“We remain positive long-term on the industry and the overall valuation picture also looks attractive combined with strong profitability in the industry. The key risks are naturally stricter regulation out of China, stronger pace on employment reducing gaming consumption, and higher interest rates impacting valuations negatively.”

Are gaming shares a good investment opportunity?

Gaming itself isn’t going anywhere. We all love to game in one way or another. What’s unknown is which areas of the gaming ecosystem will continue to grow and become more profitable.

It may be better to take a wide and diverse investing view of gaming stocks rather than focusing too narrowly. Tech and consumer habits advance at such a fast pace that picking out individual winners is tough.

I think there are some solid investing opportunities in this area. But it may be a wise strategy to follow the example set by Saxo Markets and hold a variety of investments within this sector. Remember, though, that just as in a good game, there is no straightforward path to success with investing. The value of any investment can go up as well as down and you may get out less than you put in.

The post Gaming stocks now worst-performing sector of 2021 appeared first on The Motley Fool UK.

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