Why I think this FTSE 250 stock is one to buy for a decent long-term bet

I reckon there’s a long-term growth story to play for with this outperforming FTSE 250 stock and I’d buy to hold for the long haul.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Business development to success and FTSE 100 250 350 growth concept.

Image source: Getty Images

Online betting and gaming company 888 Holdings (LSE: 888) posted some meaty numbers today in its full-year results report. And the shares jumped higher on the news.

For investors piling into the FTSE 250 stock at the bottom of last spring’s crash, the ride has been meteoric. As I write, the shares change hands near 350p. And the market capitalisation is around £1.23bn. But in March 2020, the share price languished close to 70p.

Why I think 888 is a FTSE 250 stock to buy

But 888 has more than recovered from the coronavirus dip. The stock is now above the previous high of around 320p set in May 2018. And surging earnings throughout 2020 helped to drive that progress.  Many people, it seems, turned to gaming and gambling as an antidote for Covid stress, furlough boredom, and bulging personal bank accounts.

Today the company reported revenue in 2020 almost 52% higher than the previous year. And adjusted earnings per share shot up by nearly 103%. Meanwhile, cash inflow backed up those earnings and pushed the firm’s bank balance up to $190m from just under $97m the prior year. One of the strengths of the business is its strong balance sheet showing only around $7m of interest-bearing loans and lease liabilities.  

The firm’s financial performance has been good. And the directors rewarded shareholders with a 200% hike in the total dividend for the year. But that increase includes one-off special payments, as well as ordinary dividends.

But it’s not all perfect. 888 is unlikely to repeat its barnstorming 2020 performance in the current trading year as the world emerges from lockdowns. City analysts expect earnings to decline by around 20% in 2021 and the total dividend could be more than 50% lower.

Looking ahead, the company said the “annualised impact” of regulatory and compliance changes will likely knock between $70m and $100m off this year’s revenue. To put that in perspective, the company just posted revenue of just under $850m for 2020.

Yet the directors insist there’s been “strong” momentum in 2021 so far. And they are “confident” the company will achieve growth in revenue during the year. One reason for optimism is the expansion programme in the US. In 2020, around 11% of revenue came from the US and the Americas.

Expansion abroad

However, the UK is still the company’s biggest single market, accounting for 39% of revenue last year. But 48% came from the rest of Europe, the Middle East and Africa, with the remaining 2% coming from the rest of the world. Chief executive Itai Pazner reckons 888 has an “outstanding platform” upon which to build further strategic progress during 2021 and beyond.

With the stock at 350p, the forward-looking earnings multiple for 2021 is around 22 and the anticipated dividend yield is close to 1.7%.  I reckon that valuation looks rich because the company is unlikely to repeat its recent rate of earnings growth. Nevertheless, there’s a longer-term growth story to play for here. Although growth in earnings is not guaranteed in the years ahead. But on balance, I’m keeping the shares on watch with a view to buying on dips and down-days to hold them for the long haul.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Kevin Godbold has no position in any share mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Playful senior couple in aprons dancing and smiling while preparing healthy dinner at home
Investing Articles

I’ve bought Diageo shares to boost my long-term passive income!

I plan to hold on to my Diageo shares well into retirement. Here's why I think it's a top stock…

Read more »

New virtual money concept, Gold Bitcoins
Investing Articles

Down 61%, are Argo Blockchain shares worth buying?

Argo Blockchain shares have tumbled in value. As a shareholder, Christopher Ruane considers what might come next for the business…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 UK dividend stocks with yields over 10%

These dividend stocks are the highest yielders on the UK market, says Roland Head. But how safe are these generous…

Read more »

Couple relaxing on a beach in front of a sunset
Investing Articles

I’d start buying shares for passive income with this pair

Our writer is looking to earn passive income via investing, and here are two leading stocks he might buy.

Read more »

Tanker coming in to dock in calm waters and a clear sunset
Investing Articles

Here’s the Shell dividend forecast through to 2024

The Shell dividend is still nearly 50% below 2019 levels. Will the oil giant use record profits to rebuild its…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

3 FTSE 100 stocks I think Warren Buffett might love!

Warren Buffett made his fortune thanks to the success of US shares. But here are three FTSE 100 stocks I…

Read more »

Bearded man writing on notepad in front of computer
Investing Articles

Down 75%, has the Deliveroo share price bottomed?

The last 12 months have been torrid for the Deliveroo share price. But does this open an opportunity to grab…

Read more »

Smartly dressed middle-aged black gentleman working at his desk
Investing Articles

Is now FINALLY the time to buy Lloyds shares?

Lloyds shares have leapt in value as market confidence has improved. Should I buy the FTSE 100 bank before it…

Read more »