FTSE 100 incumbent Entain (LSE: ENT) is one of the stocks on the UK’s premier index I’d be happy to avoid right now.
Here’s why I’m steering clear!
Gaming giant
Entain is an online gaming and sports betting firm. Although the company’s name may not be instantly recognizable, some of its brands are very popular. These include partypoker, Ladbrokes, and Coral, to mention a few.
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The shares haven’t been on a great run in the past 12 months. At this time last year, they were trading for 1,297p, compared to current levels of 824p.
A part of this is due to macroeconomic volatility hurting many FTSE 100 stocks. This turbulence has been caused by higher interest rates and inflationary pressures.
Why I’m avoiding Entain shares
In some cases, a price drop could entice me to buy cheaper shares now, with a view to a recovery. Entain is certainly not one of those cases.
The wider outlook, as well as specific issues with the business, are really off-putting for me. Starting with wider issues, consumer spending has been weaker across the board, including for goods like food, clothing, and other items. Gaming and sports betting is certainly a luxury, and I can see performance potentially falling if economic pressure continues.
In addition to this, Entain’s board confirmed in a recent update that stiffer regulations across the gaming industry will hurt its performance levels. This increased regulation, and looming spectre of future changes, such as affordability checks, are a red flag for me.
Furthermore, the business has been hit with a huge fine worth £585m from the HMRC in relation to its legacy Turkish business.
However, it’s not all doom and gloom. I must admit there are some green shoots of positivity. In the recent update, the business did confirm gaming revenues were up over 10%. Plus, the business does have a great profile, presence, and brand power in a burgeoning market.
Furthermore, a recent venture in the US with MGM Resorts to create BetMGM, could be lucrative. A part of this venture is the fact it has become the exclusive live odds sports betting partner for social media giant X (formerly Twitter). The could offer Entain a whole new revenue stream which could push investor sentiment, performance, and returns upwards.
Final thoughts
From a fundamentals view, the shares don’t scream value for money to me on a price-to-earnings ratio of 17. Plus, a dividend yield of just over 2% isn’t exactly eye-catching. However, it’s worth mentioning that dividends are never guaranteed.
Gambling and online gaming is risky. To me, buying Entain shares for my holdings also looks risky.
I think there are better stocks out there for me that offer me more stability, less risk, as well as better opportunities to help build my wealth.
I’ll certainly keep an eye on Entain shares and look to revisit my position in the future.
