Why King Digital Entertainment PLC Stock Popped Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Extending a two-day winning streak following two positive analyst notes, shares of King Digital Entertainment PLC (NYSE: KING  ) jumped another 10% early Wednesday before closing the day up around 6%.

So what: Shares of King Digital have risen around 27% since Monday, when at least two analysts chimed in with bullish comments for the mobile game specialist. First, JPMorgan's Doug Anmuth stated King Digital's strong free cash flow of around $800 million this fiscal year should enable it to return cash to shareholders. Anmuth also noted he believes King Digital's upcoming game launches should provide much-needed diversification. In addition, Wedbush analyst Michael Pachter expressed confidence in King Digital's "large market share" in the free-to-play games space, and insisted it's "built to last" given the impending contributions from other games in its pipeline.

Now what: Today's gains bring the stock almost exactly back to its March IPO price of $22.50 per share. Since then, the overwhelming worry for King Digital shareholders has been its over-reliance on the currently all-important Candy Crush Saga game, which single-handedly accounted for 67% of King Digital's bookings in the first quarter. Personally, I remain skeptical of the economics driving sustained profitability for businesses in the free-to-play game space. But if King Digital can merely prove it's not a one-hit wonder, I'll admit there could be little preventing the stock from rewarding patient shareholders from here.

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