Shares of South Korean video game developer NCsoft are currently being ignored by the market and are being sold at a “very cheap” price, Schroders fund manager Vera German said. Although NCsoft shares are only traded in South Korea, U.S. and European investors can purchase the shares through ETFs. NCsoft accounts for 3.41% of the Global X Video Games and Esports ETF and 4.1% of the Global X Video Games and Esports UCITS ETF. The company’s stock price has been hit hard in the past few years, with the stock price falling sharply from its peak in 2021, and it has fallen 40% in the past 12 months. German, co-manager of emerging markets value strategy at Schroders, attributed the sell-off to several factors. These include concerns about the company’s reliance on its aging Lineage game series, which accounts for nearly three-quarters of its revenue, and the lack of new hits in its pipeline. Combined with doubts about the company’s ability to adapt to changing trends in the gaming industry, these issues have led many investors to avoid NCsoft stock. “For us, that’s where the opportunity lies. Because of course, once there’s a catalyst, once revenue looks better, that’s going to be reflected in the price almost immediately,” Germaine told CNBC Pro at the recent Value Investor Conference in London. . “When we started looking at it, the first thing that struck us was how cheap these stocks were.” What could drive stock prices higher? Value investors believe NCsoft is well-positioned for future growth. The company’s balance sheet includes KRW 1.5 trillion (USD 1.1 billion) in net cash, with strong cash flow generation. German also sees opportunities for NCsoft to improve its profit margins, which are in the double digits and lag those of its closest Korean peers. For example, game developers Krafton and Nexon have average EBITDA margins of 35% to 45% respectively. German said another potential catalyst for NCsoft is the release of a game called Thrones and Freedom in the near future. The game has been repeatedly delayed over the past few years since it was first released in beta in 2016. %. This optimism led her to take a contrarian stance against NCsoft. Most analysts have a hold rating on the stock, seeing only 2% upside, according to FactSet data. “We like to buy companies where all the sellers are very negative because to us that means the market doesn’t see growth opportunities in the company,” explains Germain. “So we’re pleased to be able to completely buck the trend.”
