Over the past five years, the Flutter Entertainment (LSE: FLTR) the stock price rose more than 40%. However, it is currently down 35% from the all-time high reached in March 2021.
I wonder if he will reach those levels again?
Flutter Entertainment was created in 2016 by the merger of Paddy Power and Betfair. Since then, it has grown by acquisition, buying game companies in Canada, Georgia and Italy. To diversify, it also acquired an American fantasy sports operator, as well as an online bingo website and app.
This period of expansion saw sales increase by £4.3 billion over four years.
Although most of its £6 billion in revenue in 2021 was generated online, Flutter Entertainment still operates 600 stores on the high street.
According Technavio, a market research firm, the global gambling market will be worth $565 billion by 2025, an increase of $220 billion in five years. This excludes the online gaming market, which Insight estimates it could be worth $132 billion by 2030.
This is good news for the “world’s leading sports betting and online gaming operator“.
FIFA said bookmakers took $155 billion from the 2018 World Cup. This year’s tournament which, ironically, is to be held in Qatar (one of the few countries in the world where gambling is illegal) , should beat that number.
Flutter Entertainment should therefore be among the winners of this year’s competition.
Investors appreciated the half-year results released in August, with the share price climbing 14% on the day.
The company reported 11% year-over-year revenue growth and an increase in its average monthly customer count to 8.7 million.
However, spending on gambling is discretionary.
A context of rising interest rates, which negatively impacts customers’ disposable income, is not good news for the company.
Flutter Entertainment is also exposed to rising borrowing costs, due to its relatively high level of debt. Borrowings were £62m at the end of 2017 but four years later had risen to £3.8bn. This was to be expected, given that a large part of its acquisitions were financed by debt.
The company currently has a debt ratio of 4.1 times EBITDA (earnings before interest, taxes, depreciation and amortization). This compares to its mid-term target of one to two times. Reaching this milestone is important because, at this stage, the company has committed to reviewing its dividend policy.
A dividend was last paid in October 2019.
When the company reported results in the first week of August, there had been no declines in customer spending. But since then, central banks around the world have raised interest rates.
What did I conclude?
At the moment, I think it’s too risky for me to invest in Flutter Entertainment.
Although the markets in which it operates are growing rapidly, I fear that the coming economic headwinds and rising interest rates will affect its revenue.
I also like to own stocks in companies that pay a dividend.
So I will keep the company on my watch list and review the situation in the new year.
Who knows, maybe by then England will have won the World Cup. But then again, I wouldn’t bet on that either.
Should I bet on the rise in Flutter Entertainment stock price? first appeared on The Motley Fool UK.
James Beard has no position in any of the stocks mentioned. The Motley Fool UK has no position in any of the stocks mentioned. The opinions expressed on the companies mentioned in this article are those of the author and may therefore differ from the official recommendations we give in our subscription services such as Share Advisor, Hidden Winners and Pro. At The Motley Fool, we believe that considering a wide range of information makes us better investors.
Motley Fool United Kingdom 2022