Gaming stocks now worst-performing sector of 2021

Could this be game over for gaming stocks? Stocks in the sector are having a poor year so far. Here’s why they’re struggling to level up.

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.

Hispanic man using laptop in home office and drinking coffee

Image source: Getty Images

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.

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.

[top_pitch]

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.

[middle_pitch]

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.

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.

More on Personal Finance

Note paper with question mark on orange background
Personal Finance

Should you invest your ISA in a model portfolio?

Which model ISA portfolios offer both high performance and low fees? Hargreaves Lansdown, Interactive Investor and AJ Bell go under…

Read more »

Economic Uncertainty Ahead Sign With Stormy Background
Personal Finance

Is it time to exit emerging markets investments?

Investors may well be sitting on losses from emerging markets funds. Is it worth keeping the faith for a sustained…

Read more »

Personal Finance

Share trading? Three shares with turnaround potential

Share trading has been difficult in 2022, but which companies have turnaround potential? Jo Groves takes a closer look at…

Read more »

Man using credit card and smartphone for purchasing goods online.
Personal Finance

Revealed! Why Gen Z may be the savviest generation when it comes to credit cards

New research reveals that Gen Z may be the most astute when it comes to credit cards. But why? And…

Read more »

Environmental technology concept.
Personal Finance

The 10 best-performing sectors for ISA investors

The best-performing sectors over the past year invested in real assets such as infrastructure, but is this trend set to…

Read more »

Road sign warning of a risk ahead
Personal Finance

Recession risk ‘on the rise’: is it time for investors to worry?

A major global bank has suggested the risk of a recession in the UK is 'on the rise'. So, should…

Read more »

pensive bearded business man sitting on chair looking out of the window
Personal Finance

1 in 4 cutting back on investments amid cost of living crisis

New research shows one in four investors have cut back on their investing contributions to cope with the rising cost…

Read more »

Image of person checking their shares portfolio on mobile phone and computer
Personal Finance

The 10 most popular stocks among UK investors so far this year

As the new tax year kicks off, here's a look at some of the most popular stocks among UK investors…

Read more »