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Analysts expect a 200-per-cent return from this small-cap stock targeting female gamers

KuuHubb co-founder and chief executive Jouni Keranen.

With its focus on lifestyle applications and mobile video games geared to women, KuuHubb Inc. has been attracting a lot of investor attention since it went public last summer.

Shares of the Finland-based, TSX Venture Exchange-listed company – whose properties including the Recolor digital colouring book, Neybers interior-design game and My Hospital medical-centre-simulation game – are up 7 per cent since they started trading on June 16 at $1.25.

The small-cap stock has also been volatile. It fell to a low of $1 in early July, then skyrocketed to a high of $2.44 in early November after the company reported updated revenue and user numbers, before settling back to its current level around $1.30.

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While the stock is considered high risk, analysts are bullish on KuuHubb's aggressive growth plans in the fast-growing mobile-gaming market and its lifestyle-category niche. Both analysts that cover the stock have a buy recommendation and a $4 target price, which implies a return of 200 per cent from its current price. "We believe there is plenty of upside in our estimates as KUU expands across geographies and into adjacent lifestyle categories (like interior design, fashion and jewellery, home and garden)," Echelon Wealth Partners analyst Ralph Garcea said in a recent note, referring to the company's stock symbol. He also likes the management team and its experience in the online-games industry in Asia, "which are a particular area of focus for KuuHubb in its business plans."

KuuHubb was started 2014 as an online gaming consultancy based in Helsinki and made a shift in 2016 toward buying and developing mobile apps with a focus on lifestyle and entertainment games geared to women. ("Kuu" comes from the Finnish word moon and is a reference to "moonshot," a common term companies use to describe an ambitious, ground-breaking project. "Hubb" is a play on the concept of connecting online communities worldwide.)

Recolor is the company's flagship product, which capitalizes on the growing trend of adult colouring for relaxation. Users can also collect virtual coins, which analysts say could develop into a form of cryptocurrency for the company in future.

On Wednesday, KuuHubb continued to boost its portfolio, buying German-based, blockchain-enabled mobile e-sports platform developer Valiance UG. The platform is designed to support both mobile e-sports competitors and content creators and "provides them with opportunities to monetize their involvement playing e-sports titles they love," the company stated.

KuuHubb purchased design gaming company Neybers in November, which it plans to revamp by adding new game and social media elements, similar to what it has done with Recolor. The company makes money from subscriptions and, in December, it started selling video advertising as another revenue stream.

KuuHubb reported preliminary revenue of US$6.2-million for its second quarter ended Dec. 31 up from revenue of C$3.6-million for the first quarter ended Sept. 30. (The company has changed the currency in which it reports from Canadian to U.S. dollars.) Monthly average users grew to seven million at the end of December, up from 5.4 million users at the end of September.

"We believe the preliminary results point to the company executing and tracking to its strategic growth plan," Cormark Securities analyst Hubert Mak wrote in recent note. He said KuuHubb is "one of the few public ways to play directly into the large and fast-growing mobile app market," and has "multiple growth paths, led by its flagship Recolor mobile app."

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KuuHubb co-founder and chief executive Jouni Keranen said the company is focused on growing its apps and buying "underappreciated assets with global potential" in what he sees as the underserved female lifestyle and gaming market.

"We want to expand the portfolio. We still see a lot of exciting opportunities in this mobile niche … space," Mr. Keranen said in a recent telephone interview from Finland.

Part of the strategy is to keep these apps alive by regularly adding new content and building partnerships with brands. Over the past year, Recolor has featured dedicated content for the Kellogg food brand and the Lionsgate movies My Little Pony and Wonder.

As for its Toronto listing, Mr. Keränen said the company wanted to list in North America and chose the TSX Venture Exchange, calling it a "credible" and "respectable" trading venue.

About 50 per cent of the stock is owned by insiders, including Finnish family offices, Mr. Keranen said. He personally owns about 11 per cent of the shares.

Ryan Modesto, CEO at independent research company 5i Research, said the high insider ownership is a potential positive for investors. "It's nice to see they have skin in the game," he said.

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Still, he cautions investors about buying KuuHubb given that it's a small, early-stage company with a short history on the public market. Investors should also pay attention to how the acquisition-hungry company pays for future deals, including the potential share dilution. "We think the risks are just too high for most investors here," said Mr. Modesto.

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