TPS Trade Alert – September 18, 2014
September 18, 2014
Recommendation:
Buy Gravity (NASDAQ: GRVY) up to $0.95 per share.
Trade Rationale:
Slowly but surely, video gaming is becoming one of the primary types of entertainment across the globe. What used to be the province for boys and nerds is now commonplace among people of all ages and genders.
Think about this…
Many of the world’s largest and most influential companies are charging hard to become key players in the video game industry.
If you watched the big Apple (AAPL) product unveiling last week, you’ll notice both new iPhone 6 versions are heavily catered towards the gaming experience. There was even a game demo during the conference!
And how about those acquisitions?
Amazon (AMZN) recently acquired Twitch for $1 billion. Twitch is a live streaming platform for gaming competitions. It’s a way for people all over the world to watch professional video gamers play games. Clearly, gaming is a big deal these days if this kind of company is worth a billion.
What’s more, Microsoft (MSFT) just announced the purchase of gaming company Mojang for $2.5 billion. Mojang developed the uber-popular Minecraft, which has already sold over 50 million copies. MSFT is one of several big names trying to become an even bigger creator of games.
And that’s why I think this company we’re about to recommend is a great investment.
Introducing Gravity (NASDAQ: GRVY).
GRVY develops online games in Korea, US, Europe, and other Asian countries. It’s biggest following is in East Asian countries, but the company has attempted to break into the US gaming market in recent years.
Gravity made a name for itself with its ultra-smash hit, Ragnarok Online. Ragnarok is an MMORPG (massively multiplayer online role playing game). It’s actually been around since 2001 and has over 40 million accounts created!
Unlike other popular MMORPGs, Ragnarok focuses more on community development and character design. Basically, it’s billed as a non-violent game and tends to appeal to female gamers and family members, along with traditional gamers.
In Korea, where the game by far has its biggest following, gamers will spend hundreds of dollars on in-game accessories such as virtual clothing. This sort of model isn’t quite as lucrative in the US, which is why GRVY’s games haven’t succeeded as well over here.
Nevertheless, the company continues to develop new games, including mobile games, which should help supplement revenue as the original Ragnarok ages.
Meanwhile, for such an inexpensive stock, the company still pulls in a hefty amount of revenue. In fact, in 2013, GRVY generated a whopping $45 million in sales… this for a company worth just $23 million according to market cap.
Why such a cheap valuation? Well, the company has been losing sales recently. But, in the video game business, it only takes one game to turn things around – either a resurgence from an existing game or a brand new one.
Not to mention, given all the acquisitions and mergers in this space, I could easily see the company get gobbled up by a bigger player.
Here’s the best part…
The company is sitting on a ton of cash and no debt. As a matter of fact, GRVY holds close to $42 million. That means, just taking into account the cash position, the stock should be worth $1.50 per share!
Essentially, because GRVY is a small company with very little US presence, the stock is trading at just 55% of its cash value! That’s insane. And it doesn’t even include the other assets, such as the Ragnarok user base or brand name.
We think this stock is a no-brainer investment. Go ahead and grab shares here and sit tight.
Remember to use limit orders when placing your trades. And stick to your position sizing rules.
Key Facts:
| Company: | Gravity |
| Ticker: | GRVY |
| Recent Price: | $0.82 |
| Market Cap: | $23 million |
| Avg. Daily Volume: | 20,455 shares |
Chart:
Category: TPS Trade Alert
