Monday 17 March 2014

Analysis of Gravity

A Korean online game developer and seller

Company: Gravity Co. Ltd.

Business: A Korean online game company that are traded on Nasdaq and is to 59.3% owned by the Japanese game company GungHo. Gravity have five business fields: Online Games Development (producing games, most well known in Ragnarok), Mobile Business (trying to make Ragnarok possible to play also on mobile units), Multi Platform (making Ragnarok DS that works on Xbox 360 live, PSP ect.), OSMU (trying to expand the games into animation, toys, music etc.) and finally IPTV (working on developing new business models and games for the TV).

Active: As any online company they are present world wide with their games and servers for providing a nice experience for their customers.

P/E: -0.4 (made loss in 2012 and 2013 is not looking better) P/E5: 4.6

This company was analysed due to a request that can be found here.

contrarian values of P/E, P/B, ROE as well as dividend

Due to losses the P/E of Gravity is at -0.4 but the P/B is however scary good with 0.1. But, due to the poor performance in 2012 Grahams says no to this one. Earnings to sales are also negative with -36% and ROE is negative with -23%. The book to debt is good with 4.4 which mainly seems to come form when they stepped into the US and that they still have not wasted the money from then but by the look of it they are slowly eating it up now. In the last five years they have had a yearly growth of 1.7% which I find pathetic for an online game company and this gives us a motivated P/E of 8 to 10 which means compared to the P/E5 they are currently undervalued by the market. They have never paid any dividends and I doubt they will start this year.

Conclusion: Graham says no and so do I. Yes they are sitting on money but that is also all they have. Their latest game did not really work out and the contracts they did have are being cancelled. Their biggest owner is a Japanese company and at least in my opinion Japanese companies are prepared to go very far before they stop and change something meaning that I doubt any of that cash will be paid out to shareholders and instead it will be eaten up as salaries, new game developments etc. which of course can become a new successful game but can also become just like Ragnarok 2. I find the company too small to invest in and would never advice anyone to do so. However if you must invest in Gravity then at least make sure that they have a new blockbuster out on the market with record sales before you step in.

If this analysis is outdated then you can request a new one.

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