The G5 Entertainment share has performed very poorly recently, for no obvious reason. Business continues to go well, as the recent Q2 2012 report and our regular download ranking checks confirm. Nevertheless, the G5 share is down some 15% over the last 3 months and some 11% over the last week. At the same time, the only true mobile gaming peer Glu Mobile share is up some 20% over the last 3 months and 11% over the last month. Looking at the ratio of relative share price performance between G5 and Glu, the pair has been trading on average at around 3.7 over the last 12 months (see graph below). The current ratio is around2.8.
Trading at around USD 5.05 and looking at analyst estimate of an 2013 EPS of USD 0.17, Glu Mobile is currently valued at 30x expected 2013 earnings. This compares to G5’s current valuation of below 10x expected 2012 earnings. In our opinion, this difference in performance and valuation seems unsustainable and it will be only a matter of time until this gap will be closed in favour of G5 Entertainment. As so many times in the past, the local micro-cap investor base in Sweden is behaving in strange ways and we think this is a golden opportunity to profit from this misjudgment.
G5 Entertainment relative share price performance versus Glu Mobile: