For a FTSE 100 stock to move more than 10% during a day, something important has happened. So with Flutter Entertainment (LSE:FLTR) shares down 11% so far this morning (9 November), it naturally caught my attention. Here’s what I think investors needs to know to be able to make an informed decision on whether to buy or not.
A hit to the outlook
The Q3 results out today are the main influence on the share price. The outlook for full-year adjusted EBITDA was revised down. Previously, the group was expecting the earnings figure to be in the £1.44bn-£1.60bn range. Although this is still the case, it expects the figure to be £1.44bn, at the bottom of the range.
The report flagged up a hit from foreign exchange of £30m and “very customer-friendly sports results” impacting the figure by £50m. Both factors are unpredictable but I am left scratching my head a bit. There are tools that can be used to protect against foreign exchange movements, exactly to help avoid such large losses.
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Further, Flutter is a gambling company. It surely has ways to hedge itself against sports results so that it should never have such a hit to earnings.
Therefore, I feel the lower earnings impact could have been avoided with better planning. This is a risk that I see going forward that could hamper the firm. I believe other investors think the same, hence the sharp move lower in the share price.
Strong growth in key areas
Putting those issues to one side, the rest of the update was impressive. A key metric is the average number of monthly players. This increased by 16% from Q3 2022, which shows fundamental growth. Total revenue was up 8% versus the same quarter last year.
So although the outlook for earnings has been reduced, this is based on — hopefully — one-off factors. At the core, the business is growing and performing well.
The stock was up 16% over the past year before the hit this morning. Depending on the rest of the day, it will likely wipe out most of these gains. I actually see this as a good dip for investors to consider buying.
Diversification is key
Aside from the good growth I’ve already mentioned, the company is becoming increasingly diversified. With the US in full swing, the group can benefit from sports such as the NFL. As growth continues in new markets, it should only help to reduce reliance on one geography or one sport.
This will likely smooth out financial results in the future so that blips (such as the one today) should have less of an impact going forward. This should help to reduce volatility in the stock. With all that being said, I think it’s a smart option for investors to consider right now.
