Glu Mobile Inc. (NASDAQ:GLUU) is coming unglued today, in a good way. The Multimedia & Graphics Software company's shares are up nearly 9% as we type thanks, at least in part, to an upgrade.
Benchmark upped GLUU to a "Buy" recommendation from "Hold" with a $5.60 price-target – upside potential 15.7% to target as of this keystroke.
Glu Mobile develops and publishes a portfolio of action/adventure and casual games for the smartphones and tablet devices users. It develops games based on its own brands, such as Big Time Gangsta, Blood & Glory, Contract Killer, Contract Killer: Zombies, Deer Hunter, Eternity Warriors, Frontline Commando, Gun Bros, Heroes of Destiny, Motocross Meltdown, Samurai vs. Zombies Defense, and Stardom.
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Analyst Mike Hickey wrote, "In our view, management has renewed credibility, from recent product success, after a significant re-tooling of their development expertise. The Company's product portfolio and subsequent financial performance should benefit from the rapidly expanding smartphone / tablet hardware device market and related consumer software ecosystem. We view the Company's risk / reward valuation profile balancing positive (raised from neutral); acknowledging positive trends in mobile gaming market and continued success from recent game launches."
iStock believes GLUU's technical could drive the price higher than fundamentals. To hit $5.60 would require a 40 P/E, which is twice the projected rate of sales growth; a possibility, but at the top end of the comfort range for many investors. The necessary price-to-sales ratio would be 2.42, which is above the five-year average of 1.8.
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Gluu shares could be in for more run as short sellers added another million shares to the short list. At the end of April, 12.46 million Glu shares were sold short. By the end of May, the number rose to 13.89%, which is 17.8% of the float (shares available for trading.)
Based on the mobile media company's chart, a limited short-squeeze could come into play if the stock price closes above resistance at the psychological $5 level. There are also institutional eligibility issues that could benefit GLUU at $5 since many funds are prohibited from buying stocks under $5. Institutions own just 20.9% of GLUU's shares. That's low and means a whole lot of money could flow into Benchmark's latest buy recommendation.
Overall: Glu Mobile Inc.'s (NASDAQ:GLUU) could support Benchmark's $5.60 target based on 2015's consensus sales and earnings estimates. However, A powerful short squeeze could ignite if/when the stock tops $5.25-$5.50 (52-week high range), making Benchmark's $5.60 look conservative.
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