This FTSE 250 stock is up 400%+ since markets crashed. Can it continue?

This FTSE 250 (INDEXFTSE:MCX) has soared since the beginning of the pandemic. Paul Summers questions whether there’s more upside ahead.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

It’s fair to say that FTSE 250 online betting firm 888 (LSE: 888) was one of the big winners from the multiple UK lockdowns that were enforced for most of last year. With everyone stuck indoors, it was inevitable that many would seek to pass the time with a few online games. And those investors who recognised this would have cleaned up. Since March 2020, 888’s share price has rocketed well over 400% and it’s up 117% in 12 months!

Can this FTSE 250 star keep performing?

The near-5% rise in the stock so far following today’s half-year results does suggest investors think the good times are here to stay. 

Revenue rose 39% to $528.4m in the first six months of 2021 thanks to great trading in every regulated market that the FTSE 250 member operates in. A particular highlight was the performance in Italy where 888 logged 80% growth. In the UK, revenues jumped 50%, no doubt supported by the gradual return of sporting events and the delayed Euro 2020 football tournament. On a statutory basis, pre-tax profit rose 14% to just under $58m. 

Based on all this, 888’s management now believes that revenues and adjusted EBITDA will come in slightly ahead of that previously expected. I can also see this happening, especially if the company hits the ground running on its collaboration with Sports Illustrated in the burgeoning US market. The Gibraltar-based firm’s SI Sportsbook is down to go live in Colorado within weeks. More launches are planned “in the coming months“. 

Slowing revenue growth

Despite this, I also think it’s wise to remain prudent.

Revenue growth over the last couple of months has slowed, no doubt due to the reopening of leisure venues. This looks set to continue as customers give priority to things they couldn’t do in 2020 such as taking a holiday abroad and spending their cash on experiences. Factor in tough comparatives from last year and the continued ascendancy of 888’s share price is most definitely not a given.

On top of this, it’s worth noting that this mid-cap’s operating margins tend to be rather volatile from year to year, at least relative to some companies in the FTSE 250. They can also dip rather low (just 4% in 2017). As someone who places great importance on quality metrics such as this when selecting stocks, I’d prefer these to be both higher and more consistent. 

Still good value

888 shares were changing hands for almost 21 times earnings before the market opened. That doesn’t feel excessive given the company’s aforementioned prospects.

There are other things worth highlighting. In contrast to some firms in this sector (and thanks to its online-only business model), the company has long generated strong returns on capital. Like top UK fund manager Terry Smith, this is something I look for when scrutinising which companies to invest in. 

While income isn’t a priority for me, I also like the dividend stream on offer. Today, 888 announced a 41% hike to its interim payout. Holders will receive 4.5 cents (3.3p) per share they own. As things stand, Analysts are expecting the company to hand back a total of 14.5 cents (11p) for the current financial year. That gives a yield of 2.6%, taking today’s share price rise into account. I could get more elsewhere, but at least these cash returns are easily covered by profit. 

It may no longer be a screaming buy, but I’d still buy today.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Here’s how a Stocks and Shares ISA and Lifetime ISA could supercharge my wealth!

Individual Savings Accounts (ISAs) can help UK share investors take their earnings to the next level. And their importance is…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »