The Entain (LSE: ENT) share price was flying high in 2021. The online gambling firm, which owns Coral and Ladbrokes among others, seemed to be enjoying a nice boost from the Covid impact.
But since that high point, the stock has lost two-thirds of its value. Soaring inflation and high interest rates don’t leave so much spare cash in people’s pockets for a flutter on the gee-gees. The firm even fell to a loss in 2023.
Still, a Q1 update on 17 April helped push the shares up a couple of percent in early trading. Are we set for a return to growth?
Meeting expectations
The first quarter of the year was in line with expectations, with no real surprises.
We’re looking at a 3% rise in reported net gaming revenue, which translates to a 3% drop on a proforma basis. The gains are mostly international. But we saw falls in the UK and Ireland, where gambing regulation continues to be tightened.
So overall, to me it seemed mixed. And I think that was echoed by interim CEO Stella David, who spoke of “strong performances in many of our markets as well as known challenges in others.“
I’d say the key thing for investors is that the rot of 2023 seems to have been halted. But more than that, it’s hard to say at this stage.
Forecasts
Broker forecasts are probably unlikely to change much as a result of this latest update. They do show decent earnings growth in the next few years. But they don’t make Entain stock look like a screaming buy to me.
If they’re on the money, we’d still see a price-to-earnings (P/E) ratio as high as 21 even by the end of 2025. It could drop to around 11.5 the following year, which looks a lot better.
But that’s still close to three years out, and a lot could happen in that time. Especially in a risky and volatile sector like gambling.
Cash
What would I want to see before I’d think of buying any shares? Well, I’d want to see strong cash flow, for sure. And on that front, things look upbeat.
Despite the bottom-line loss of 2023, free cash flow was still positive. And the City sees it more than doubling by 2026. Gamblers do seem to be very keen on pushing cash in the direction of the bookies.
Will we see a turnaround in 2024? I’d say it’s a clear possibility, but it’s way too early to say just yet.
Buy?
I’d at least want to wait for interim results, due on 8 August, before I could come close to making up my mind about whether to buy.
But to be honest, it’s not a decision I need to make. I pretty much only buy solid dividend-paying FTSE 100 stocks these days, and those with a good safety moat.
So, Entain doesn’t fit my profile. But I do think shareholders could see a decent second half this year.
