Outperforming investor names ‘very cheap’ global gaming stock as a ‘contrarian’ bet
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Shares of NCsoft, a South Korean video game developer, are currently being overlooked by the market and are up for grabs at a “very cheap” price, according to Schroders fund manager Vera German. While NCsoft shares are only traded in South Korea, they are accessible to U.S. and European investors through ETFs. NCsoft accounts for 3.41% of the Global X Video Games & Esports ETF and 4.1% of the Global X Video Games & Esports UCITS ETF . The company’s shares have been hit hard over the past few years, with the stock price declining significantly from its peak in 2021 and falling 40% over the past 12 months. German, co-manager of the Emerging Market Value strategy at Schroders , attributes the sell-off to several factors. These include concerns about the company’s reliance on its aging Lineage game franchise, which accounts for nearly three-quarters of its revenue, and a perceived lack of new hit titles in its pipeline. Combined with doubts over the company’s ability to adapt to changing trends in the gaming industry, these issues have led many investors to steer clear of NCsoft’s stock. “For us, that’s exactly where the opportunity lies. Because of course, once there is a catalyst, once the revenue looks better, that will be in the price almost instantly,” German told CNBC Pro at the most recent London Value Investor Conference. “When we started looking at it, one of the first things that struck us was that the shares were very cheap.” What will push shares higher? The value investor believes that NCsoft is well-positioned for future growth. The company’s balance sheet includes net cash of 1.5 trillion South Korean won ($1.1 billion), and its cash flow generation has been strong. German also sees opportunities for NCsoft to improve its margins, which — in the low double digits — lag behind its closest peers in Korea. For example, gaming developers Krafton and Nexon averaged 35% to 45% on EBITDA margins respectively. Another potential catalyst for NCsoft, according to German, is the release of a game called “Throne and Liberty” in the near future. The game has been repeatedly delayed over the past few years after being first released for testing in 2016. In addition, NCsoft also announced a cost-cutting program and a share buyback program earlier this month which have already boosted the company’s stock price by around 10%. This optimism has led her to take a contrarian stance on NCsoft. Most analysts have a hold rating on the stock, giving shares only a 2% upside, according to FactSet data. “We love buying companies where all the sell side is very negative because, to us, this means the market sees no chance of development for the company,” German explained. “So we’re very happy to be in that position to be fully contrarian to the market.”
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