The Sportech (LSE: SPO) share price rose by 14% on Friday (13 August). The betting and technology infrastructure company has been gathering some momentum due to expected future deals, (unlike another company on Friday, Avon).
With the share price on the rise, will this momentum continue in the months to come? Let’s explore if now is the time for me to invest in Sportech.
The Sportech share price gets a boost
Sportech owns a chain of game venues and sports bars in Connecticut, USA, but was previously denied a sports betting licence by the state regulator. Since its denial, the company has been looking to partner with a company that has a licence.
Sportech announced last Friday, that it has a signed a new 10-year deal that will see its operating services launched into Connecticut. It signed the exclusive commercial agreement with Connecticut Lottery Corp (CLC) to provide sports betting services in betting shops as well as online.
Should I buy?
While this is good news as the deal will allow Sportech to offer its services in a new market, it has faced some challenges and its recent FY20 earnings report wasn’t great. Its revenue fell 41% in 2020 to £20m and gross profit fell from £18.3m to £10.5m. The company also reported a rise in losses. Its loss before tax widened from £9.7m to £10.6m.
Of course, while the poor financial performance is worth noting, I think it comes as no surprise considering that many sports events were cancelled and fans weren’t allowed to attend those that did take place. That said, Sportech also faces very strong competition from industry leader Playtech and the company could even be muscled out of some areas it’s in at some point in the future.
However, that’s not to say I’m bearish on the stock. I believe the new deal for the firm is a great way for it diversify its market appeal. In the US, $1,55bn of revenue was generated in the sports betting industry in 2020. Considering the huge market Sportech has moved into, I think this venture is a good sign of potential growth to come.
Sportech will also benefit from the end to Covid-19 restrictions on sport events. For instance, England’s Premier League kicked-off this weekend and fans were pouring into stadiums. This should make up for a lot of lost revenue from the previous year.
Can the Sportech share price continue to grow?
After Sportech’s struggles in its attempts to crack in the US market, it has finally been able to do so — or at least to make a start at doing so. Even though I have some concerns over how it can stay competitive against companies like Playtech, I think this partnership deal is a step in the right direction.
On balance, I expect the Sportech share prise to continue rising further and think this share could be a great addition to my portfolio.
