Forget GameStop: Buy This Gaming Stock Instead

GameStop Inc. (NYSE:GME) is on a hot streak again. However, I’ve got my eyes on a TSX stock in the same sector instead.

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The video game industry has grown from a niche space that catered almost exclusively to the young male demographic to one that has broadened its reach among consumers in the 2020s. This is a market that investors should seek exposure to in the years ahead. Today, I want to discuss why GameStop (NYSE:GME) has had a second wind to kick off the month of June. Moreover, I want to look at a video game TSX stock worth snatching up right now.

Don’t sleep on the video game industry this decade

Last year, market research firm Grand View Research released a report on the future of the video game market. It estimated that the video game market was worth US$151 billion in 2019. Grand View projected that the market would achieve a compound annual growth rate (CAGR) of 12.9% from 2020 to 2027. It anticipated that the growing penetration of internet services and improved availability would play a key role in the growth of this industry.

Investors should also keep their eye on the growth of esports. A major e-sports event was originally scheduled to occur before the 2020 Olympics in Japan. However, the COVID-19 pandemic threw this plan into flux. Regardless, this industry continues to post impressive growth. A year spent inside for a huge portion of the global population has almost certainly drawn even more users into the video game orbit. Before we get into the TSX stock with a foothold in this space, I want to focus on GameStop’s big boost.

How GameStop gained — and then lost — momentum in May

GameStop captured the attention of the investing world in January and February of this year. The stock soared to an all-time high of US$483 per share at the height of the meme stock frenzy. Activist investors on social media went to war with short-sellers and won some impressive victories to kick off the year. However, many newcomers were burnt in the aftermath as GameStop stock fell back to earth.

Its shares gained momentum again in June. GameStop has climbed 58% month over month. In March, I’d suggested that investors forget about this meme stock and target another TSX stock in the gaming space. Jefferies, a New York-based financial services group, recently told clients that its main brokerage arm will no longer execute short sells in GameStop, AMC Entertainment, and MicroVision. This development is worth monitoring, but I’m still staying away from these equities in the late spring.

Here’s why I have my eyes on this gaming stock instead

Enthusiast Gaming (TSX:EGLX)(NASDAQ:EGLX) is a Toronto-based company engaged in the media, content, entertainment, and esports business around the world. This TSX stock has climbed 58% in 2021 as of early afternoon trading on June 4. Its shares are up over 400% from the prior year.

In Q1 2021, the company achieved revenue growth of 321% and gross profit jumped 80% over the previous year. Meanwhile, direct advertising sales surged to $2.2 million compared to $60,000 in Q1 2020. Enthusiast Gaming also struck promising partnership deals with Samsung and TikTok.

This TSX stock suffered a dip in May. The video game industry and esports business are on track for strong growth this decade. Investors should consider snatching up Enthusiast Gaming for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned. David Gardner owns shares of GameStop.

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