This gaming stock is up 18% in 1 month. Should I buy now?

Frontier Developments’ shares have jumped 18% in a month. Suraj Radhakrishnan analyses if this gaming stock is still a buy for his portfolio.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

A graph made of neon tubes in a room

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The video game industry is seeing a very predictable boom in recent times. The pandemic-fuelled boom has pushed gaming stock to new heights. A recent report by Accenture valued the gaming sector in excess of $300bn. In the wake of this surge, some UK gaming companies are shining through.

Frontier Developments (LSE: FDEV) is one UK gaming stock I am looking to add to my long-term portfolio to capitalise on the industry boom. Here is why I’m expecting huge returns from the game developer over the next decade.


Frontier Developments shares have risen 18.7% in the last month and 29.3% in the last 12 months. Despite some turbulence in the last year, I expect steady growth for the foreseeable future.

Total revenue in 2020 was £76.1m (2019: £89.7m). This is because the company has been gearing up for big-name releases in 2022. Most 2020-21 releases have been updates for existing games.

The company has maintained an operating profit margin of 22% despite the lower revenue. Also, cash balances have increased to £45.8m in 2020 (2019: £35.3m). To me, this shows how the company is well placed to undertake R&D tasks and work on conceptualisation and development of new releases.

This brings me to the host of big-name releases Frontier has planned for 2022. The developer has secured the license to release Formula 1 management games from 2022 onwards. This is a huge gaming genre and could prove very profitable. Real-time strategy game Warhammer: Age of Sigmar also looks very promising as it allows for in-game purchases and paid future content.

The company is targeting five to six releases per year from 2023 onwards, propelled by the success of third-party publishing label, Frontier Foundry. The company expects revenue in 2023 to be £160m to £180m which is twice the current revenue figures. This leads me to believe that the UK gaming stock is set for a surge in the next five years.

Attractive business model

One important factor I look for in the financial data of gaming companies is how they generate their revenue. The gaming industry is built on recurring, in-game transactions and paid downloadable content (PDLCs). This strategy helps games remain popular and profitable for several years after the initial release. 

Older releases like Elite Dangerous, Planet Coaster, and Jurassic World Evolution generated 60% of the revenue in 2020 which is evidence that the Frontier’s launch and nurture strategy is the right way forward for the company.


Though I am very optimistic about the growth of the gaming industry, picking a winner among the many studios is no easy task. Frontier’s financials and business model look strong but success depends on the trajectory of the gaming industry as a whole, which is ever-changing. 

Morphing audience opinions determine demand and success in the industry. Gaming enthusiasts have seen several promising releases buried because of one bad review or the launch of other popular titles.

In my opinion, Frontier Developments is a defensive game developer. They opt to generate revenue through intelligent licensing and PDLCs. Revenue from this could drive experimentation in the future too. The company is on my list of shares I would hold for a decade and I remain confident that this UK gaming stock could generate incredible shareholder returns.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Suraj Radhakrishnan has no position in any of the shares mentioned. The Motley Fool UK has recommended Frontier Developments. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young Asian man drinking coffee at home and looking at his phone
Investing Articles

Is Rolls-Royce’s share price an irresistible bargain?

Is Rolls-Royce's share price the FTSE 100's greatest bargain today? Royston Wild explains why he would -- and wouldn't --…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Is the Vodafone share price a wonderful bargain or a horrible value trap?

As the Vodafone share price continues to fall, is it now a stock to buy with a view to a…

Read more »

Hand of a mature man opening a safety deposit box.
Investing Articles

I’d buy 95,239 shares of this banking stock to generate £200 of monthly passive income

Muhammad Cheema takes a look at how Lloyds shares, with a dividend yield of 5.9%, can generate a healthy monthly…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

Can FY results give the Antofagasta share price a long-term boost?

The Antofagasta share price has had a good five years. Now the company says it's set to enter a new…

Read more »

Person holding magnifying glass over important document, reading the small print
Dividend Shares

Can I make sustainable passive income from share buybacks?

Jon Smith notes the rise in share buybacks from FTSE 100 companies, but flags up why they aren't great for…

Read more »

Front view of a mixed-race couple walking past a shop window and looking in.
Investing Articles

After the Currys share price rockets, here are more potential UK takeover targets!

The Currys share price has surged 39% higher in response to news of a takeover bid. Which UK stocks could…

Read more »

Investing Articles

Down 25%, where will the British American Tobacco share price go next?

The British American Tobacco share price has taken a hit. But this Fool isn't deterred. He think's now could be…

Read more »

Young black colleagues high-fiving each other at work
Investing Articles

2 cheap dividend stocks I’d snap up in a heartbeat!

This Fool is on the look out for quality dividend stocks and earmarks these two firms as great options to…

Read more »