2 UK gaming stocks I’d buy instead of Playtech

Playtech’s surge after acquisition casts a light on UK gaming stocks. This Fool thinks there are better investments in the space today.

| 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.

Gaming and software stock Playtech has jumped 54% in the last week. This comes after recent news that the company is set to be acquired by Australian gambling machine manufacturer Aristocrat Leisure for £2.7bn.

Playtech specialises in designing games and software for casinos and betting websites. Although Playtech cannot be classified as a pure game developer, it operates in a comparable space and the UK market has some excellent picks in here too. Here are two UK gaming stocks I’d invest in instead of Playtech.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

UK gaming stock with excellent financials

Sumo Group (LSE:SUMO) shares surged earlier this year after a successful takeover, much like Playtech. Acquired by Chinese gaming behemoth Tencent, Sumo has been on a great run in the market, backed up by solid first-half 2021 results.

Total revenue grew an impressive 91% in H1 2021 to £50.4m (H1 2020: £26.3m). Gross profits grew 102% to £21.9m and the company amassed £5.7m net cash from operations. Also, the company has been on an acquisition spree, investing in smaller but promising game development studios from across the world. The business had a contract book totalling £540m in August 2021. This, to me, is a very encouraging sign for the rest of 2021 and beyond.

The gaming industry is valued at £300bn overall. This is extremely exciting but also brings in a lot of competition. The space looks incredible crowded at the moment and game releases are being stalled, postponed, or retracted every month. Promising releases too, seem to collapse from some bad reviews. Generating recurring revenue from a single release is a tough nut to crack for many smaller studios.

But this is where I think Sumo benefits from the £900m Tencent acquisition. The Chinese giant is behind some of the most profitable games of the decade including Fortnite, League of Legends, and PUBG Mobile. This and its strong core financials is why I think Sumo Group is an excellent UK gaming stock to buy for my portfolio.

Company with an exciting portfolio

I have been bullish on British video games developer Team17 Group (LSE: TM17) for a while now. I think it offers a stable business strategy combined with successful past releases that it can capitalise on. 

As a potential shareholder, I’m impressed by the 34% increase in revenue and gross profit of £39.1m. Also, TM17’s earnings per share have shown a compounded annual growth rate (CAGR) of 58% since 2017. This is very impressive to me considering the turbulence of the industry.

TM17 shares are currently trading at 765p at a profit-to-earnings ratio of 45 times. The shares look overvalued at the moment, which is a concern. And a return of -7.1% in 2021 is disappointing and highlights the turbulence in the video game market. Also, a lot of TM17’s games are developed to foster a group playing experience. This market could diminish as offices and schools start reopening at full capacity.

But I think TM17’s multi-console approach, host of successful titles, and sustained strong performance set it up for success for the next decade. It is carving a nice niche for itself and I would consider an investment in this UK gaming stock today.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Suraj Radhakrishnan has no position in any of the shares 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

Buffett at the BRK AGM
Investing Articles

What Warren Buffett’s wisdom and investing in stocks will teach you about life

Investing is a journey of self-discovery. So what will stocks and the words of legendary investor Warren Buffett teach you…

Read more »

Smiling senior white man talking through telephone while using laptop at desk.
Investing Articles

5 ‘no-brainer’ income stocks to buy today!

Amid soaring inflation, I'm looking at these income stocks, offering big yields, to grow my portfolio.

Read more »

Trader on video call from his home office
Investing Articles

How I’d buy the dip in quality UK stocks with £750

Jon Smith explains the concept of buying the dip, and talks through the UK stocks he's going to buy at…

Read more »

Woman looking at a jar of pennies
Investing Articles

5 UK penny shares to buy with £5,000 today

It's hard to remember a time when there were as many tempting penny shares around as now. Here are five…

Read more »

man in shirt using computer and smiling while working in the office
Investing Articles

The Scottish Mortgage share price keeps falling. Should I buy?

The Scottish Mortgage share price has collapsed from its all-time high in little more than six months. Is it now…

Read more »

UK money in a Jar on a background
Investing Articles

Value investing isn’t dead! My top stocks to buy as inflation hits 9%

As value investing principles come back into fashion, Andrew Mackie looks at the current backdrop and shares what he's investing…

Read more »

Windmills for electric power production.
Investing Articles

Which FTSE 100 shares would I buy to offset higher fuel bills?

Rishi Sunak unveiled a windfall tax this week, hitting shares of energy firms, and especially oil & gas producers. But…

Read more »

Concentrated young african american black guy sitting on heated floor at modern coffee table in living room, looking at laptop screen
Investing Articles

Woodbois shares: should I buy the dip?

Woodbois Ltd (LON: WBI) shares have backtracked from their recent high. Partial to the odd penny stock, Paul Summers considers…

Read more »