The Holy Grail of Investing is to find the “the next big thing.” Mobile video gaming appears to fit the bill.

As it merges with cloud computing and the latest 3D imagery, mobile gaming is poised for market-thumping gains. And these games aren’t just for kids. Growing numbers of adults are jumping on the bandwagon too, which greatly expands the potential market.

So, even if you haven’t actually heard of the company, you might be familiar with the mobile games of Glu Mobile (NSDQ: GLUU).

As a dad who watches the children in our family obsessively play Glu-produced games, I can attest to the popularity of the company’s offerings. They’re catnip to kids.

But as an investment, the mobile gaming sector can be volatile, populated with many small-cap companies that soar one day only to crash the next. The trick is finding a company with outsized growth potential that doesn’t carry excessive risk.

Glu Mobile is a momentum stock in the mobile gaming business and its share price has been on a tear lately. Is Glu a good buy for 2019, or is it an over-hyped investment fad destined for a day of reckoning? Let’s find out.

What Is Glu Mobile?

With a market cap of $1 billion, Glu Mobile develops and markets a portfolio of mobile games for the users of smartphones and tablet devices. The company publishes titles in four genres: celebrity and fashion, home décor, sports and action, and time management.

Based in San Francisco, Glu Mobile offers popular games including Kim Kardashian: Hollywood, The Swift Life (based on singer Taylor Swift), Deer Hunter, Contract Killer, Cooking Dash, Covet Fashion, Design Home, QuizUp, and Call of Duty, to cite only a partial list.

Glu’s products operate on several platforms, including iOS, Android, Google Chrome, Amazon, and Windows Phone. Glu markets and sells its games primarily through direct-to-consumer digital storefronts around the world.

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How Has Glu Mobile Stock Performed?

Glu stock has consistently outperformed the S&P 500:

• Over the past 12 months, Glu has gained 89.5% versus a gain of 4.5% for the S&P 500.
• Over the past two years, Glu has gained 216.6% compared to a gain of 22.1% for the S&P 500.
• Over the past five years, Glu has gained 116.6% compared to a gain of 52.9% for the S&P 500.

How Has Glu Mobile Performed In 2017/2018?

• In 2017, Glu gained 82% compared to a gain of 19.4% for the S&P 500.
• In 2018 year to date, Glu gained 104.1% compared to a gain of 2.3% for the S&P 500.

Who Are Glu Mobile’s Rivals?

Tencent (OTC: TCEHY)

China-based Tencent is among the largest and most widely used Internet service portals in that country.

With a market cap of $380.3 billion, Tencent develops software; develops and operates online games; and provides information technology, asset management, online literature, and online music entertainment services.

Tencent emphasizes social media-based entertainment and the firm is expanding its offerings. In April 2015, Tencent paid $126 million for a 15% stake in Glu Mobile, a stake that has steadily risen over the years to now reach 20.8%..

Read Also: What is our Tencent stock prediction?

Gameloft

Paris-based Gameloft is a global video game publisher. The company operates 21 development studios and publishes games with an emphasis on the mobile gaming market.

Formerly a public company, Gameloft was acquired in 2016 by French media conglomerate Vivendi (OTC: VIVHY).

Zynga (NSDQ: ZNGA)

San Franciso-based Zynga offers social games on mobile devices, including smartphones and tablets and on social networking sites such as Facebook (NSDQ: FB).

With a market cap of $3.1 billion, Zynga’s most successful games are FarmVille, Zynga Poker, Words With Friends, and CSR Racing.

Will Glu Mobile Go Up In 2019 (Should You Buy)?

Glu Mobile rose to fame in 2014 on the success of Kim Kardashian: Hollywood. But that hit game was a double-edged sword. Glu’s management realized that the company was becoming too dependent on the title and tried to replicate its success. At first, the company produced a streak of less impressive “celebrity” titles.

Glu is a stable component of the Russell 2000 but Wall Street grew concerned about the company’s decelerating sales growth and high celebrity royalties. Yet Glu shrewdly pivoted away from celebrity titles to diversify its gaming portfolio with new franchises.

Kim Kardashian: Hollywood remains a core title for Glu, but the company’s diversification holds it in good stead. The company is producing more games that aren’t tied to celebrities, which precludes royalty payments. In the most recent quarter, the firm racked up year-over-year revenue growth of 22.4%.

As this video explains, Glu Mobile has taken pains to expand its selection of games, to ensure brand diversification:

The following chart, compiled with data from research firm Statista, shows the overall growth of the global games market since 2015, projected through 2019 and broken down by segment:

Glu is well-positioned to leverage cloud-computing technology to offer streaming services for video games, a practice known as “cloud gaming,” which is one of the fastest growth areas in the gaming niche.

It shouldn’t come as a surprise that Tencent, the biggest gaming company in the world, has in recent years bought more than a fifth of Glu. A major part of the bull case for Glu is its ripe candidacy for takeover by Tencent or another deep-pocketed industry leader. If Glu gets bought out, the move would represent a windfall for shareholders.

Glu also is pursuing geographic diversification. The U.S. mobile gaming market is becoming saturated, prompting Glu to look overseas, especially to game-crazed Asia, for future growth.

GLUU’s forward 12-month price-to-earnings ratio (FPE) is 21.1, higher than the S&P 500’s FPE of 17 but lower than the FPEs of most of its rivals. Tencent’s FPE hovers at 28 and Zynga’s at 22.6.

Will Glu Mobile Go Down In 2019 (Should You Sell)?

Every stock comes with a potential bear case. Let’s look at Glu’s.

It isn’t easy to develop mobile gaming diversions that retain the short attention spans of gamers. The barriers to entry are low and gamers can be fickle. And instead of buying Glu, a major company could simply decide to crush the company by releasing a slew of expensively designed games that small-cap Glu couldn’t possibly match.

What’s more, investors face an uncertain 2019, as global growth slows amid rising interest rates and an escalating trade war. The technology sector has lost traction lately, with investors fleeing high-flying tech stocks to rotate into value plays. Glu could get caught in the selling downdraft, regardless of its fundamentals.

Overall Glu Mobile Forecast And Prediction For 2019

If you’re looking for a growth stock that will withstand the coming storms of 2019, find a company that’s a leader in a fast-growing industry. Preferably, the industry isn’t vulnerable to economic cycles and the company makes innovative products that enjoy customer loyalty. Glu Mobile meets these criteria.

The mobile gaming market is on a multi-year upward trajectory, which should be immune from headwinds such as tariffs and rising interest rates.

The average analyst consensus is for Glu to generate year-over-year (YoY) earnings growth in 2018 of 192.9%. In 2019, projected YoY earnings growth comes in at 34.6%.

Over the next five years, Glu’s earnings growth is expected to reach 15%, on an annualized basis. Those are impressive numbers, considering the overall slowdown in corporate earnings growth expected for the S&P 500 in 2019, as the temporary stimulus from U.S. tax cuts wears off.

Glu Mobile offers stellar growth in 2019 and beyond, through its proven ability to turn out new products that its customers find downright addictive.

Speculation swirls on Wall Street that Glu could be a takeover target in 2019, which makes Glu even more appealing as an investment. For money-making potential, this gaming stock is no mere child’s play. In fact, it’s shaping up to be the next big thing.

John Persinos is the managing editor of Investing Daily.