There were a number of FTSE 250 stocks that posted strong gains last year. One of the things I love about the UK mid-cap index is the ability to uncover some real gems across a number of industries.
Playtech (LSE: PTEC) was one of those gems for investors who owned the stock last year.
nfortunately, I wasn’t able to purchase Playtech shares before they jumped nearly 60% in 2024. The leap means they sit at £7.22 per share as I write on 16 January.
However, the gambling-focused technology company has shown up on my radar in recent weeks.
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Why I’m watching
Recent gains aside, it’s the Playtech story that has really got me interested.
The company divested its Italian business, Snaitech, to Flutter Entertainment for €2.3bn (£1.9bn) in cash during September as it looked to streamline operations and free up capital for reinvestment or returning to shareholders.
A renewed focus on business-to-business (B2B) operations is something else I like given the potential to increase margins and capitalise on key growth markets.
Resolving a key dispute with Caliplay in Mexico was another factor behind the company’s surging share price as investors eyed a strengthened position in Latin America.
Why 2025 could be a good year
I think Playtech enters 2025 in a solid position, with a clear strategy and less baggage compared to 12 months ago.
Online gambling revenues continue to grow globally and Playtech’s technological advantage and strategic partnerships could be key.
This could also create some interest in the stock as a potential takeover target. While there’s no suggestion this is in the offing, any bids received would clearly need to offer shareholders a premium to the current share price to excite their interest.
Of course, there are plenty of reasons why Playtech may struggle to make further gains in 2025. Where there’s opportunity there’s also fierce competition, and the gambling industry is no exception.
Technology moves quickly, as do consumer preferences. Shareholders are also unhappy with a proposed €100bn (£84bn) bonus scheme following the Snaitech sale.
Set against a backdrop of economic uncertainty, these factors could mean 2025 is more challenging than many anticipate.
Valuation
While it may have a reasonable growth trajectory ahead, I do think Playtech is a touch overvalued right now.
Many gambling peers including Flutter are loss-making. That makes it hard to compare Playtech’s price-to-earnings (P/E) ratio of 23.6 to peers in a meaningful way.
I do see the tech side of wagering as a potential ‘winner takes all’ type of market. That’s where I mark Playtech down slightly, with its £2.1bn market cap significantly smaller than the likes of Entain (£4.3bn).
My verdict
I think Playtech is well placed as a technology-led provider in the growing gambling industry. However, I don’t think it’s one for me right now.
While online gambling revenues are up, I’m wary of how quickly consumer spending can change in the industry. Combined with ever-present regulatory changes and the stock feels a touch too rich for my blood at the current valuation.
