As a veteran value investor, I’m always looking out for cheap stocks. My goal is to buy stakes in great businesses with temporarily beaten-down share prices. Indeed, this disconnection between company share prices and their future prospects happens all the time.
As Benjamin Graham, the father of value investing, wisely remarked, “In the short run, the market is a voting machine. In the long run, it is a weighing machine”. In other words, share prices are often driven by short-term sentiment and buying/selling pressure. However, in the long term, earnings are the best indicator of a company’s worth. Here’s one cheap stock that’s taken a beating in recent months that I believe has the potential to rebound in 2022.
I see FTSE 100 firm Flutter as a cheap stock
Every week, I scour the FTSE 100 index hunting for cheap stocks that have taken a beating over the past week, month, quarter, or year. Often, my searches throw up companies whose share prices have fallen victim to short-term sentiment. For example, while the FTSE 100 is up 0.9% over the past month, 39 of its 101 constituent shares have declined over the past 30 days. (One FTSE 100 firm has dual-listed shares.) It’s inside this bargain bin of laggards and losers where I often find cheap and discounted shares.
Five FTSE 100 stocks have suffered double-digit percentage losses over the past month. These declines range from 11.3% to a whopping 47.2%. In 100th place — the Footsie’s second-worst performer over 30 days — is gambling and betting firm Flutter Entertainment (LSE: FLTR).
As I write, the Flutter share price stands at 10,820p, down 220p (-2%) today. This values the group at £19bn, making it a FTSE 100 middleweight. The reason Flutter shares may have entered ‘cheap stock’ territory is they have plunged recently. At their 52-week closing high, the shares hit 16,915p on 22 March of this year. Today, they are almost £61 cheaper, down 35.9% in eight months. Ouch. What’s more, earlier today they hit their 52-week intra-day trading low of 10,655p, before recovering as the day unfolded.
I see Flutter rebounding in 2022
Over the past month, the Flutter share price has crashed by almost a quarter, diving 23.4% in 30 days. It has also lost 18.6% over six months and 16.4% over one year. In short, owning FLTR stock since this spring has been a thankless task. But buying this share today buys a stake in Flutter’s future, not its recent past. That’s why I think this cheap stock has entered bargain territory and may even be a snip or steal.
Right now, I don’t have any fundamentals to weigh up Flutter’s valuation against its earnings or dividends. One reason is that the group’s last dividend payment was in May 2020, after which the company suspended cash pay-outs due to Covid-19. But when I look at Flutter today, I see several excellent, market-leading betting brands. These include PaddyPower, Betfair, FanDuel, FoxBet, Sky Betting and Gaming, and PokerStars — all leaders in their fields.
For the record, Flutter employs more than 14,000 people to service 14m customers in 100 different markets. Also, with the US market rapidly opening up to legal gambling, I have high hopes for Flicker’s fast-growing US operations. Though I don’t own Flutter shares, I’d buy this cheap stock today, hoping for recovery next year!
