After several difficult years, Cambridge-based game developer Frontier Developments LON:FDEV appears to be staging a convincing turnaround. The studio, known for its simulation franchises like Planet Zoo, Planet Coaster, and Jurassic World Evolution, has returned to growth, profitability, and investor favour in recent months.
Writes Keelan Cooper, Financial Analyst at Stockopedia
Such has been the strength of momentum that Frontier Developments has emerged as the top performer from our Top Ten UK Stocks – July 2025 report, published earlier this month. The shares are already up more than 15% as investors continue to rotate back into UK small caps and hunt for credible recovery stories.
This kind of move is exactly what our StockRanks system is designed to spot. At Stockopedia, we score every listed company across Quality, Value, and Momentum to create a single, intuitive metric: the StockRank. It’s a rules-based framework that helps investors cut through noise and focus on the traits most often linked with future outperformance, strong fundamentals, reasonable valuations, and positive market momentum.
This methodology has been central to our “Top Stocks” series, where we’ve recently profiled companies like Currys, a high street retailer experiencing a surprising earnings rebound, and Morgan Sindall, a well-managed construction group benefiting from government infrastructure tailwinds. While both are larger, more established players with strong balance sheets and dividend yields, today’s spotlight falls on something of a more speculative opportunity, in Frontier Developments.
A turnaround year in FY25
For the year ending May 2025, revenue edged up to £90.6m from £89.3m, reversing the previous year’s revenue decline. That modest topline growth understates a more impressive improvement in operational performance. Adjusted EBITDA surged to between £8–9m (vs. just £0.9m in FY24), driven by a more profitable product mix, cost control, and a £3.5m boost from the sale of publishing rights.
Cash generation followed suit. Frontier’s cash position swelled by £13m, reaching £42.5m, allowing management to propose a £10m share buyback. For investors, seeing buybacks at depressed valuations is an excellent vote of confidence as they can enhance earnings per share and signal management’s belief that the market is undervaluing the business.
Core franchises show their strength
The business-wide rebound has been powered by the firm’s original Creative Management Simulation (CMS) strategy. CMS games like Planet Zoo and Planet Coaster now account for 77% of group revenues, up from 62% a year ago. Planet Coaster 2, launched in November, has already sold over 400,000 copies. Meanwhile, Planet Zoo saw modest 2% growth, and Jurassic World Evolution held its ground ahead of a major third instalment due this October.
These titles not only generate upfront sales but also support longer-tail revenues via DLCs and community engagement. With back catalogue games making up a substantial portion of sales, the business benefits from recurring digital revenue, even in non-release years.
Frontier Developments forecasts turning brighter
Broker Zeus Capital now projects FY26 revenue of £94.0m, with EPS rising to 19.9p, and reaching 28.6p in FY27. Adjusted operating profit is expected to rise to £11–12m. Analyst sentiment has been lifting alongside the numbers: Panmure Liberum maintains a bullish stance with a 430p price target, citing the upcoming Jurassic World Evolution 3 as a likely earnings catalyst.
Importantly, the firm has revamped its reporting metrics to reflect updated UK tax treatment on video games. It will now guide based on adjusted operating profit rather than adjusted EBITDA, enhancing transparency.
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StockRank Signals: Quality and Momentum stand out
Frontier currently holds an excellent StockRank of 96, underpinned by:
- Momentum Rank: 98 – The shares are up +50% over 12 months, with gains accelerating in recent months (+79% vs FTSE-All Share over the last 3 months). Volume trends and price strength have confirmed rising investor interest.
- Quality Rank: 83 – Frontier boasts double-digit operating margins and a return on equity of 21.9%. The Piotroski F-Score is solid at 7/9, while its Z-Score of 8.14 suggests negligible bankruptcy risk.
- Value Rank: 60 – Valuation remains relatively full at 22.8x forecast earnings, but less so when you take a closer look at the 14.1x price-to-free cash flow. However, the loftier earnings multiples may be justified by its rebound trajectory and strong net cash position. The company’s EV/EBITDA position of less than 4x is particularly attractive.
Frontier Developments bull & bear points
Bull case highlights:
- Flagship franchises with loyal fan bases offer recurring revenue potential.
- Return to profitability backed by cash generation and cost discipline.
- A £10m buyback supports earnings per share and investor sentiment.
- Exciting upcoming game launches (notably Jurassic World Evolution 3 in October).
Risks to consider:
- No dividend, despite a healthy balance sheet, may deter income-focused investors.
- Games remain hit-driven, and commercial success depends on each launch.
- Recent financial volatility and declining EPS over several years have dented long-term investor trust.
Conclusion
Frontier Developments is a compelling but high-risk proposition. It remains a small-cap, hit-driven business in a competitive industry, where success often hinges on the performance of just a handful of titles. But with improving operational execution, stabilising cash flows, and a well-defined release pipeline, there’s a plausible path for further recovery.
For momentum-driven investors, the stock’s strong price action and analyst upgrades point to renewed confidence. Whilst for quality investors, the rising margins and clean, cash-rich balance sheet should offer some comfort.
The valuation may look stretched by traditional metrics, especially when compared to the broader UK market, which continues to trade at a discount globally. However, in the context of a business emerging from a multi-year lows, and with a £10 million buyback in play, there’s a reasonable argument that the market may still be underestimating its recovery potential.
Frontier won’t suit every investor, but viewed through the QVM lens, it illustrates how a data-driven approach can uncover opportunities that may be overlooked by the broader market. And it’s just one of several distinct recovery stories we’ve identified this month across a range of sectors and risk profiles.
You can check out how other stocks in our Top Ten UK Stocks – July 2025 report are performing, from retailers like Currys to infrastructure leaders like Morgan Sindall, via the link below.
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