Stock market volatility remains elevated as fears over the global economy and rocketing inflation balloon. Video games studio Frontier Developments (LSE: FDEV), though, has managed to swerve the carnage. Its share price has actually risen strongly in recent weeks!
That being said, Frontier is still almost 40% cheaper than it was a year ago. So is now a good time for me to buy the gaming stock?
Investor confidence rebounds
Should you invest £1,000 in Frontier Developments Plc right now?
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The release of strong trading numbers has lifted the games company in recent weeks. This is a welcome change as previous statements had prompted bouts of heavy selling by investors.
Frontier’s share price slumped in November as it announced poor sales of its Jurassic World: Evolution 2 title. It fell again in January as it declared soaring costs pushed it into recording a first-half operating loss.
But as I say, news more recently has been far more encouraging. Last week Frontier said that revenues had surged to an annual record of £114m in the financial year to May 2022.
This was up 26% year-on-year, driven by solid sales of its dinosaur game and better-than-expected demand for its Warhammer 40,000: Chaos Gate – Daemonhunters title.
Games sales to explode?
Soaring inflation poses a clear threat to Frontier in the near-to-medium term. Rising pressure on consumer spending power could weigh heavily on sales of its video games.
However, the business has a string of popular titles in the pipeline that could help it continue growing revenues. F1 Manager 2022 for example is set to hit the market in August. The company also launched an expansion pack for Jurassic World: Evolution 2 last week.
Sales of Frontier could grow strongly over the next decade in fact if analyst projections are to be believed. Grand View Research thinks hardware and software innovations will drive the video games market from $220.8bn today to a whopping $583.7bn by 2030.
An exciting new Frontier
I’m quite tempted to buy Frontier Developments shares given these exciting projections. I already own software development services provider Keywords Studios in my portfolio. I think Frontier could be another great way for me to exploit the booming games market.
I’m also very tempted to buy because of the exceptional value for money Frontier’s share price offers today.
City analysts think earnings will soar 167% year-on-year in this financial year. This means the business trades on a forward price-to-earnings growth (PEG) ratio of just 0.2. Remember that anything below 1 suggests that a stock is undervalued.
I think Frontier could be one of the best-priced growth shares out there, in fact. The number crunchers think company earnings will soar an extra 47% in fiscal 2024 as well. This could be the precursor to strong and sustained profits growth over the next decade.
