Is Frontier Developments’ share price a brilliant bargain?

Frontier Developments’ share price has risen strongly despite the current bear market. Here’s why I think the games developer still looks too cheap.

| More on:
Smiling young man sitting in cafe and checking messages, with his laptop in front of him.

Image source: Getty Images

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?

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

Investor confidence rebounds

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.

More on Investing Articles

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

£10,000 invested in BT shares 10 years ago is now worth this much

It's painful to remember that BT shares reached over £10 at the peak of the dot com bubble in 1999.…

Read more »

Close-up Of A Piggybank With Eyeglasses And Calculator On Desk
Investing Articles

Is now the time to buy bank shares?

Our writer considers whether bank shares could be a bargain buy for his portfolio right now -- or a potential…

Read more »

Happy young female stock-picker in a cafe
Investing Articles

After steep falls, are Royal Mail shares a steal?

Royal Mail shares have more than halved since peaking a year ago. After months of steep falls, this popular stock…

Read more »

Young Woman Drives Car With Dog in Back Seat
Investing Articles

Dirt-cheap, 1 of my best stocks to buy also pays an above-average dividend!

This Fool has decided to buy the shares on his best stocks to buy now list with the shares looking…

Read more »

Light bulb with growing tree.
Investing Articles

The AFC share price just tanked! Is now the time to buy?

The AFC share price fell nearly 10% on Wednesday after the H1 revenue announcement. So, should I add this stock…

Read more »

A pastel colored growing graph with rising rocket.
Investing Articles

These shares have been growing dividends for decades. I’d buy!

Our writer considers the merits for his portfolio of buying two shares with a track record of growing dividends.

Read more »

Close-up of British bank notes
Investing Articles

Is the M&G dividend yield heading to 10%?

As the M&G dividend yield heads towards double digits, out writer explains why he is considering buying more of the…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

3 top dividend shares to buy now

With weakness in the markets, I reckon it's a good time to search for top dividend shares to buy now.

Read more »