We came across a bullish thesis on Gravity Co., Ltd. (GRVY) on Value Degen’s Substack by Unemployed Value Degen. In this article, we will summarize the bulls’ thesis on GRVY. Gravity Co., Ltd.’s share was trading at $67.33 as of Oct 17th. GRVY’s trailing P/E was 7.10 according to Yahoo Finance.
Gravity Co. (GRVY), a South Korea-based game designer, focuses on mobile games primarily launched in China and Southeast Asia. As a Level III ADR, GRVY meets the highest disclosure and compliance standards, enabling it to raise more capital in the U.S. if needed.
With a market capitalization of $416 million, $340 million in cash, and a price-to-earnings ratio of just over 4x, GRVY presents a compelling investment opportunity even at the lower end of its growth estimates as the company’s 59% ownership lies with GungHo a highly successful venture in the gaming industry led by Kazuki Morishita. His proven track record, especially with the billion-dollar Puzzle & Dragons franchise, brings valuable strategic oversight and industry expertise that can help drive GRVY’s future growth and success.
For 2023, GRVY posted $503 million in revenue and $96 million in net income, the company has highly variable earnings due to the hit-or-miss nature of game releases. Despite the unpredictable revenue patterns, GRVY has shown growth between 15% and 40%, depending on the period analyzed. GRVY’s future growth prospects are closely tied to its popular Ragnarok franchise. Several new titles, including Ragnarok Novice Heart and Ragnarok Rebirth, were launched across various Asian markets in mid-2023, with more projects slated for 2025 in Europe and China. While it’s difficult to predict which games will be hits, GRVY’s pipeline supports potential growth, although the company’s earnings may remain lumpy.
South Korea’s new policy, which seeks to tax excess cash on company balance sheets, may or may not impact smaller companies like GRVY. However, with GRVY’s substantial cash reserves, there is potential for shareholder returns if the company opts to distribute this capital. Such a move could greatly benefit shareholders and enhance the investment appeal of GRVY, especially given the current undervaluation of its stock.
With marketing expenses for new releases temporarily suppressing profits, the stock could see a significant upside as revenues from these launches materialize. The stock is currently down from its 2020 peak, trading at $59.98, but has grown 47% annually over the past eight years. GRVY offers the potential for a short-term bounce or long-term compounding, with catalysts including new game releases, increased profitability, and a possible multiple rerating.
Gravity Co., Ltd. is also not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 3 hedge fund portfolios held GRVY at the end of the second quarter which was 4 in the previous quarter. While we acknowledge the risk and potential of GRVY as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than INFY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.