A potential value stock that caught my eye recently is Playtech (LSE: PTEC). Here’s why I believe investors should consider purchasing some shares.
Software for gambling businesses
Playtech specialises in gambling software for a number of online gambling firms. These include solutions for online casinos, bingo, mobile gaming, sports betting, and more.
The reason I noticed Playtech shares is their shares have dropped to attractive levels. To add to this, a positive interim update piqued my interest, but more on that later.
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As I write, the shares are trading for 427p. At this time last year, they were trading for 544p, which is a 21% drop over a 12-month period.
Short-term pain but potential long-term gain
I’m a firm believer in long-term investing, a period I’d define as five to 10 years. However, there are shorter-term issues Playtech must contend with, hence why it could be considered a left-field choice at present.
To start with, increased volatility — caused by rising inflation and interest rates and a resulting cost-of-living crisis — could hamper demand for online gambling. This may not be good news for Playtech. Firms that rely on its software may not want to invest as much into their business to increase their respective offerings. This could hurt Playtech’s performance.
Another issue that could hurt Playtech’s investment viability is its recent dispute with Mexican gambling business Caliplay. It’s never a good look when a supplier and customer are at odds with one another (see what I did there).
Moving to the bull case, there’s lots to like about Playtech, in my opinion. Firstly, the shares trade on a price-to-earnings ratio of just nine, making the shares look dirt cheap, if you ask me.
Next, Playtech is a global business with a wide footprint and presence. It provides software for some of the leading online gambling businesses in the world. This market presence is something that could help boost growth, especially in the longer term. A key market I’ll be keeping an eye on is the US, where gambling is being legalised in many states.
Finally, despite a recent challenging backdrop, Playtech has performed well. In its interim report for 2023, the business delivered its highest ever adjusted earnings. I’m eager for full-year results to see if it can continue recent momentum. So far, the signs are promising.
Final thoughts
Investing in a business that relies on the gambling industry could be a tad risky right now. I can understand the drawbacks, especially during the current volatile economy and marketplace we find ourselves in. However, I reckon there’s an opportunity to snap up cheap Playtech shares now. I think this strategy could bear fruit once volatility subsides and we head towards a bull run.
Plus, when I consider Playtech’s dominant market position, as well as current valuation — and the fact it seems to be performing well against the backdrop of economic challenges — I think there’s an opportunity to buy cheap shares with a view to long-term returns.
