(FORTUNE Magazine) – Take a wicked spill off your skateboard in the groundbreaking Gen-X action videogame Tony Hawk's Pro Skater, and your face slams to the pavement, blood spewing all over. Still, however realistic the effects may be, it's just a game. Moments later you're back up with nary a scratch, performing gravity-defying stunts to the kickin' tunes of killer bands.

If only that presto-chango rejuvenation were a trick that investors in videogame stocks could simulate. On the heels of a disappointing holiday selling season, shareholders in the major videogame-software makers have been knocked flat on their backs. The stocks of even the best companies have skidded between 30% and 70% from their recent peaks. And this from the one segment of the tech stock universe that has been continuing to post impressive growth figures.

The result is a classic stock-picking conundrum: While video-game stocks might seem cheap because they've fallen so far, a look at industry trends suggests the more likely scenario is that their joysticks will stay stuck for as long as a couple more years.

Don't get us wrong, selling videogames is a good business to be in. Kids are fanatical about them. And the entry of Microsoft's Xbox game console into the market has for the first time made gaming a three-platform industry--the other heavyweights being Sony's PlayStation and Nintendo's GameCube. It also happens to be a cyclical industry, with stocks of software companies rising and falling somewhat predictably within a five-year rotation. "There's always a down cycle in videogames," says James Chanos, the noted short-seller and president of Kynikos Associates in New York City. "The bad news for this cycle is that there'll be no new platform for two years, and the stocks begin to anticipate the next cycle."

In other words, deflated values notwithstanding, there probably couldn't be a worse time to buy into this market. "The way you make money in cyclical industries is not buying when times are good," says Jeff Goverman, an analyst with tech-investment boutique Pacific Crest Securities in Portland, Ore. "It's buying them before they're good." So even companies that are still firing on all cylinders make for tough investments.

As an example, Goverman points to the tough road ahead for Electronic Arts (ERTS, $48), publisher of superpopular Madden NFL 2003 and The Sims. EA is widely considered the top company in the business, yet despite five consecutive quarters of exceeding Wall Street's estimates significantly, EA's shares have fallen 33% in three months. The culprit? Investors have discounted for projections of EA's slowing growth rates, from an anticipated 43% sales increase in its fiscal 2003 to 11% in 2004 to somewhere between flat and up 5% in 2005. "The average-Joe investor is probably getting frustrated because the pros already made their money," says Goverman. EA has another problem in that its much-anticipated Sims Online interactive game is off to a slow start. It announced in January that it was dropping the retail price of Sims Online from $50 to $40, but already online retailers are selling the game for as little as $30.

"A lot of inventory is being flushed out of the system," notes UBS Warburg analyst Michael Wallace, meaning that current quarters could be disappointing as publishers discount their existing titles. That, says Wallace, follows a "lousy Christmas" that saw massive disappointments from the likes of Tony Hawk publisher Activision (ATVI, $14) and THQ (THQI, $12), which puts out titles like wrestling game WWE SmackDown! Shut Your Mouth.

Even the gamemakers that haven't cratered are problematic. Wallace rates shares of Take-Two Interactive Software (TTWO, $19) a neutral, largely because of a continuing SEC investigation into its accounting. Take-Two's controversial Grand Theft Auto: Vice City is one of the industry's bestselling titles, yet the company's shares have fallen from December prices that were above $30.

Perhaps the best advice for game enthusiasts with itchy trigger fingers? Play the games now. Wait to own the stocks later.