The video game industry is poised to continue growing in 2021. Following high player engagement levels during the coronavirus pandemic, game companies now have a larger installed base of players to monetize with in-game updates. That's one reason to consider putting some money to work in a gaming stock.

While investors can't go wrong with any of the leading game companies, I believe Glu Mobile (NASDAQ:GLUU) offers the best combination of growth and value in the short term. Here's why Glu Mobile should outperform the broader market in 2021.

Growth is picking up

Glu Mobile is one of the leading mobile game developers, with $512 million in revenue over the last four quarters. Revenue has more than doubled over the past five years, but growth accelerated meaningfully in 2020. It's impressive that Glu Mobile drove 40% and 48% year-over-year revenue growth in Q2 and Q3, respectively, primarily from strong performance of existing games, along with the successful launch of Disney Sorcerer's Arena

A man holding a smartphone with dollar signs hovering over the device.

Image source: Getty Images.

Glu's top moneymakers are Design Home, Covet Fashion, and Tap Sports Baseball. Management refers to these titles as "growth games," and they accounted for 79% of total bookings (a non-GAAP measure of revenue) in 2019. But new releases coming in the near term provide visibility for more growth over the next few years.

One opportunity is expanding the Glu Sports brand. Tap Sports Baseball has steadily increased bookings over the last six years, and Glu Mobile is looking to keep the franchise growing with new features and game modes when the 2021 version launches this year. 

A bar chart showing the increase in bookings from Tap Sports Baseball.

Image source: Glu Mobile's fourth-quarter 2019 earnings presentation.

Sports titles generate good returns on capital because they produce recurring revenue streams from new updates, such as updated rosters or other in-game improvements, every year that keep players in a perpetual upgrade cycle.

Along with the release of Tap Sports Baseball 2021, Glu is also looking to grow its Glu Sports brand with two other releases: Deer Hunter World and Tap Sports Fishing. Both titles are expected to tap a potentially massive audience. 

Exploring new business models

In addition to sports, Covet Fashion and Design Home are still producing great returns. Management added new features last year that should drive further growth from these franchises in 2021. 

The most interesting item was a new e-commerce store that launched in Design Home. It allows players to shop home decor accessories while in the game. The store averaged more than 1 million daily active users during 2020. 

Design Home has been Glu Mobile's biggest game, with lifetime bookings of $596 million through the most recent quarter, and it continues to offer growth potential. The title delivered a bookings increase of 15% year over year in the third quarter. On top of that, the high margins generated from the e-commerce store is a lucrative opportunity that management is excited about. 

What's more, Glu Mobile's Crowdstar studio is expected to release Table & Taste in beta during the first quarter of 2021. Management is applying everything it learned from building Design Home and Covet Fashion to make this new title successful. Executives believe Table & Taste and Deer Hunter World could emerge as the company's next two growth games. 

Best value in gaming

The consensus analyst estimate currently has Glu Mobile growing bookings by 9.9% in 2021, which is down from the roughly 32% rise in bookings that management expects to report for 2020. I believe there's a good chance Glu will beat the consensus estimate in 2021, depending on the timing of new releases and how they perform.

The company is also targeting further gains in margins as it improves the efficiency of its spending on user acquisition. This should keep profits and free cash flow growing faster than the top line. Over the last four quarters, Glu Mobile generated a record $45 million in free cash flow, representing an increase of 290% year over year. 

At a price-to-earnings ratio of just 17 based on the consensus earnings estimate for 2021, this gaming stock looks like a steal. Glu Mobile's current lineup of games is performing well, and new titles on the horizon should only expand its reach to more users.

A combination of a relatively low valuation compared to other video game stocks, on top of a clear road map by management to drive top- and bottom-line growth, makes Glu Mobile my top gaming stock to buy right now.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.