G5 Entertainment’s share price movement in recent weeks offered somewhat of a deja vu for investors as it resembled last years performance. This raises the question if the remainder of the year will be similar to last year as well, i.e. a sideward movement.
We believe there are several reasons to believe why 2012 will be different from 2011, with one of the most important ones being the overall sentiment on the stock market. As shown in the second graph, last year was not a good year for the stock market in general and the broader Swedish OMX30 index lost 15% during 2011. At worst, the OMX30 was down 27% (September 2011 versus January 2011). Despite the general risk aversion, the G5 share managed to hold on to its gains from the beginning of the year and finished 2011 with a gain of 91%.
Furthermore, G5 has continued to improve as a company since last year which should not be neglected. They managed to get a stable new shareholder with Swedish investment company Traction, established their presence on new platforms such as Android and have invested heavily in the development of new games. They continue to build a credible track record and this will show in the share price sooner or later. A multiple expansion should be the logical consequence. Current levels of 12x forward looking EPS estimates are more in-line with a typical pulp & paper company that does hardly have any growth at all.