Keep Your Eyes on These Three Canadian Gaming Stocks

It’s no surprise gaming saw huge growth over the pandemic, with folks hunkered down and anxious for at-home entertainment. And now with count ‘em three generations having grown up with video games as part of their daily diet, there is no stopping the sector, one which should Mario-jump past $200 billion in worldwide revenue by 2023.

And Canada has some skin in the gaming sector, which should be reason enough to rev up your favourite trading platform. But guess what? These three are all Buys, too.

Starting with Toronto-based mobile game publisher PopReach Corp (PopReach Stock Quote, Charts, News, Analysts, Financials TSXV:POPR), which aims to acquire and then operate and grow proven titles, with its stable currently including names like War of Nations, Smurfs’ Village and Garden of Time.

The company recently announced a merger with Federated Foundry, an acquirer of digital tech companies with two acquisitions this year in NotifyAI and Q1Media. The all-stock reverse takeover, announced as a Letter of Intent earlier this month, would see PopReach issue 200 million shares at $0.80 per share to Federated shareholders for a total of $160 million, with the resulting entity being composed of 70 per cent ownership by Federated shareholders and 30 per cent by PopReach shareholders.

Eight Capital analyst Adhir Kadve says it’s a good move for PopReach.

“We like the transaction as we believe that the combined PopReach+Federated is well positioned to aggressively pursue M&A given enhanced scale as well as building out a strong content and media ecosystem by leveraging PopReach’s portfolio of gaming assets and Federated’s portfolio of media and adtech assets,” Kadve said in a report to clients on August 18.

Kadve said the merger will drive synergies between the two entities in building out “a next generation advertising ecosystem” which would bring together users and content via PopReach’s portfolio of over 25 games and over 1.9 million monthly active users and Federated’s advertising tech and inventory.

“We believe key transactions such as Zynga’s acquisition of Chartboost in early May were completed with similar motivations and thus serve to validate this strategy,” Kadve said.

On PopReach, Kadve maintained his “Buy” rating and $1.75 target, which at press time represented a projected one-year return of 178 per cent.

Vancouver-based Leaf Mobile (Leaf Mobile Stock Quote, Charts, News, Analysts, Financials TSX:LEAF) has also been making M&A moves of late. The company develops free-to-play mobile games in the idle/casual game space with counter-culture titles as its focus. The company also has a proprietary software development platform, IdleKit, which generates revenue for Leaf via third-party game development.

Leaf made the transformative acquisition of East Side Games, completed in February of this year, while in June the company announced a definitive agreement to buy Truly Social Games, another Vancouver-based mobile game developer.

The deals along with the company’s organic and inorganic growth prospects and a number of games in the hopper should make Leaf Mobile a winner for investors, says Cormark Securities analyst David McFadgen, who launched coverage of LEAF earlier this month.

McFadgen said the global mobile gaming industry is currently experiencing large growth and is expected to grow at a CAGR of about seven per cent from 2021 to 2025, while for Leaf, the analyst is calling for 2021 organic revenue growth of 22 per cent.

“Leaf has several super marquee new games backed by well-known IP that are expected
to generate significant revenue in 2022 and beyond. As a result, we are forecasting organic revenue and EBITDA growth of 102 per cent and 116 per cent, respectively in 2022. We are confident that Leaf will live up to these expectations and, if so, the stock price should rise materially, ” McFadgen said in his August 10 report.

McFadgen started off LEAF with a “Buy” rating and $0.60 target price, which at press time translated to a projected return of 118 per cent.

Toronto-based Enthusiast Gaming (Enthusiast Gaming Stock Quote, Charts, News, Analysts, Financials TSX:EGLX) has a network of gaming media brands including websites, digital video channels, e-sports teams and events, boasting over 300 million users and over 40 billion annual views. The company gets its revenue mostly from advertising along with subscription-based sales and revenue from its e-sports franchises and events. The company aims to build a gaming eco-system for that segment of the population that sees gaming as a way of life, connecting with users through multi-channel media, original content and events.

Here is Scotiabank analyst Jeff Fan speaking on Enthusiast’s potential via its soon-to-launch subscription-based gaming social network, Project GG.

“We believe Enthusiast Gaming deserves a premium valuation relative to digital media because we expect it to grow faster, driven by its focus on gaming. As the market starts to appreciate the tremendous social media opportunity of Project GG, we also believe Enthusiast Gaming’s valuation will begin to migrate toward the social media group. The success of Project GG is not factored into the company’s forecasts or valuation; therefore, we believe this initiative represents a free option for shareholders,” said Fan in his coverage initiation on July 28. 

Fan sees Enthusiast’s revenue going from $155.1 million in 2021 to $291.7 by 2025, with adjusted EBITDA hitting positive by 2024. The analyst started off EGLX with a “Sector Outperform” rating and one-year target of $9.25, which at the time of publication represented a projected return of 42 per cent.

“We believe Enthusiast Gaming deserves a premium valuation relative to digital media given that we expect it to grow faster, driven by its focus on gaming,” Fan wrote.