3 Gaming Stocks That Are Better Bets Than Gamestop Corp.

Image source: Gamestop

GameStop (NYSE: GME), the brick-and-mortar video games and gaming hardware seller, has struggled in recent years in the face of a retail industry that is increasingly moving online and a new delivery model for gaming content is leading to more of it being purchased and downloaded directly through internet-connected consoles.GameStop stock certainly has some attractive aspects, including adividend yield of more than 6% and a price to earnings ratio of just 6. Still, there's a reason for this low valuation. The company expects to see same-store sales continue their decline, and fall by as much as 7% in its third quarter.

Video game fans continue to want the newest technology and on-demand content, so the long-term gains in this industry are likely to come from the content creators and actual hardware innovators. Given that insight, here are three stocks in the industry that look better than GameStop today.

Data source: Yahoo! Finance

Activision Blizzard

After an incredible start to 2016, Activision Blizzard shares lost about 10% of their value following the company's Q3 earnings report, which showed an incredible 58% jump in revenue year over year, but which also featured a lighter-than-expected Q4 forecast -- even though it was revised up. This small dip could be a great chance to buy into this growth stock at a discount.

During the third quarter, Activision posted earnings of $0.26 per share, up 53% year over year. The growth in sales and earnings was helped by a 50% increase in monthly active users, and great reaction to new releases like Overwatch, a game that launched in May, but continued to surge through Q2 and Q3, especially with huge growth in China.

Other than new games and more users, Activision has also been incredibly successful with its increased emphasis on in-game purchases and subscription content, which allow titles to bring in fresh revenue long after the game is purchased. Product sales in the quarter were actually down year over year, but subscription, licensing and other revenues more than doubled, which drove overall sales growth.

Image source: Electronic Arts

Electronic Arts

Activision's largest competitor,Electronic Arts, also has some winning game titles, such as its Star Wars Battlefront series, which has produced big growth so far in 2016, and shows promise for future growth as more movies in the franchise come out. While EA's sales growth has been less impressive than Activision's -- up 8% year over year in the recently reported fiscal Q2 2017 -- it was better than analysts expected, and it still looks as if it has plenty of potential to grow. Its loss per share was smaller than expected at $0.13, and adjusted EPS was $0.53, far ahead of analysts' expectations.

Adding to the stock's attractiveness, it trades at just 19 times earnings -- nearly half the P/E ratio of Activision. For the second half of its fiscal 2017, EA has said that it is focusing on improving gross margin to 71% for the year, up from 69% in Q2, meaning that profits could begin rising even faster in the quarters to come. That undervalued earnings growth could make this look like an even better entry point.

Image source: Nvidia

NVIDIA

The content produced by companies like Activision and EA, combined with new hardware and gaming console technology, creates a stunning overall experience for players. Powering those graphics and gameplay on the backend are the circuit boards and chips, such as those made by NVIDIA.

NVIDIA has been one of the pioneers in this space, and already works with the biggest gaming companies like Activision and EA, as well as computer and gaming hardware companies that use NVIDIA's chips in their consoles. Its most important product line could be its Pascal chips, released this summer, that will help make many more mass-market laptops virtual reality (VR) ready. Those components mean the company could one of the biggest winners of a VR industry that Digi-Capitalanalysts expect could reach $120 billion by 2020.

Beyond gaming, NVIDIA is deeply involved in the automotive industry's push toward autonomous driving, and is exposed to other high-growth sectors. The stock has gained more than 170% in the past 12 months, thanks to its incredible growth in sales and earnings, which were up 54% and 89% year over year, respectively, last quarter. NVIDIA is by far the most expensive stock in the group, trading at a P/E of 43, but it could also be the highest growth company of the three, and it has plenty of diversification.

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Seth McNew has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Activision Blizzard and Nvidia. The Motley Fool has the following options: short January 2017 $28 puts on GameStop. The Motley Fool recommends Electronic Arts. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.