Unity Software's (U) - Get Report "growth story has legs," according to an analyst from D.A. Davidson, who initiated coverage of the game-development-engine company with a buy rating and a $100 price target.
Shares of the San Francisco company at last check were up 2.2% to $85. The price target indicates 20% upside from Thursday's closing price at $83.20.
Analyst Franco Granda said in a note to clients that "we expect a meaningful revenue ramp in the years ahead."
Unity currently dominates the mobile-gaming market, which is the largest piece of the overall gaming market and the fastest growing one, Granda said.
The analyst said Unity "has earned this pole-market-share position thanks to its vast creative tools for 2D/3D graphics rendering, cost, and ease of use."
"We like Unity for four reasons: exposure to the entire gaming market; significant growth opportunities in applications beyond gaming; a hybrid revenue model with plenty of upside; and potential beneficiary of the Epic Games vs. Apple (AAPL) - Get Report feud (call option)," Granda said.
Fortnite maker Epic Games filed a lawsuit against Apple, accusing the tech giant of violating antitrust laws with its App Store fees.
"The legal battle between Epic Games and Apple over platform fees has dominated headlines over the past month. Epic's Unreal Engine is Unity's largest competitor," Granda said.
"In a move that would see Epic losing access to critical tools for game development, Apple is looking to suspend all of Epic’s development accounts, impeding UE users from receiving updates and bug fixes."
Granda said Epic's "controversial public profile creates uncertainty for some of its customers."
"Our channel checks reveal that some smaller developers are considering switching over to Unity for future projects to avoid the uncertainty around Epic," he said.
Last week, Unity Software raised $1.3 billion after its initial public offering was priced at $52 a share, the top end of its expected range.
The company, which is well known in the gaming industry but less known in the investment world, more recently has been expanding its efforts beyond gaming platforms, focusing on interactive 3D media.