After the pandemic, the Entain (LSE: ENT) share price exploded higher.
The FTSE 100 global sports-betting, gaming and interactive entertainment company became caught up in the wave of speculation boosting many stocks at the time. And a takeover offer added to the frenzy.
But much of the froth has now blown away. And the stock is down around 47% since its post-pandemic peak in September 2021.
Setting up for growth?
As I write (on 5 September 2023), it’s at 1,160p. And there’s a lot to like about the business and the stock at this level. In a best-case scenario, we could see the share price take off again in the months and years ahead.
It’s not all rosy in the business. Earnings have been volatile. But Entain is focused on a growth strategy for its regulated markets and those plans look set to deliver.
City analysts have pencilled in stunning double-digit earnings increases for 2023 and 2024. And my hope is those potential advances prove to be just the beginning of a multi-year growth phase for the business.
But as with all stocks and businesses, nothing is certain or guaranteed. The gaming industry is closely regulated. And one risk is that changes in laws can make trading difficult for a company like Entain.
But there’s also a tailwind in the sector for investors to consider. The company reckons its gaming markets have compounded growth at 15% annually over the past 10 years. And looking ahead, forecasts for the industry’s growth are robust.
Entain operates a policy of organic and acquisitive expansion. And it’s been effective in making the company a leading industry player in the UK, Europe and more recently in the US.
Good trading
August’s half-year results report was upbeat with encouraging progress in revenues and profits.
Chief executive Jette Nygaard-Andersen said the six months to 30 June 2023 had been a period of strong performance. And the business is making “clear strides” towards delivering its strategic ambitions.
Looking ahead, Nygaard-Andersen has “confidence” in the company’s prospects for the full year and beyond. There’s a strong focus on sustainable long-term growth that will combine with the firm’s global operating capabilities, she said.
The directors underpinned their optimism by slapping 5% on the interim dividend to maintain the progressive dividend policy. And companies can’t keep increasing dividends unless trading is going well. So I see the rise as a positive sign.
Meanwhile, the valuation looks up with events. The forward-looking earnings multiple for 2024 is at about 14. However, the multiple could increase if ongoing growth forecasts continue to impress investors.
So even though the share price is well down from where it once was, the stock is not in the bargain bin. And that means there’s some valuation risk here if growth ahead stalls.
But on the other hand, genuine growth opportunities rarely have low valuations. So the current level could be a good sign.
FTSE 100 growth opportunities are quite rare. So I see Entain as well worth further and deeper research now.
