The FTSE 250 online gaming and betting stock 888 Holdings (LSE: 888) is undoubtedly the star in today’s trading as I write this Thursday afternoon. The 888 Holdings share price is up by almost 18% from the last close, making it the biggest FTSE gainer by a mile, and then some.
But 888 Holdings’ sharp jump today is eye-catching not just for this reason. It also follows a six-month slide in its share price. During this time, the stock has halved. But if it starts retracing its steps to its November 2021 highs again, it might just make a good buy now. Whether it can, though, is the question.
Why is the 888 Holdings share price up?
To answer it, the first step for me is to consider what brought about this jump in the first place. It follows the company’s update from earlier today saying that its acquisition of the non-US business of William Hill will now happen at a lower price. The price has now been reduced to a range of £1.95bn-£2.05bn, down from the £2.2bn pencilled in earlier.
The company will, as a result, have to raise less equity to finance the deal than earlier envisaged. This is probably the key reason for investor bullishness on the stock, since less equity will now get diluted. Moreover, 888 Holdings posted a stellar set of results for the year 2021 in March, which saw a 500% increase in its earnings, so a sharp share price rise was probably overdue anyway.
The downside
The company did not pay dividends, however, owing to the spending required for the acquisition of William Hill. For investors hoping for dividend payouts, this could be disappointing. It could also hold the stock’s price back to some degree.
Also, it is possible that sports betting could come under greater regulation, given its potentially addictive nature. UK authorities are due to release regulatory updates anytime now on the segment. There are similar reports from the US too. This could mean that structural changes are afoot for the industry, which would impact 888 Holdings too.
The saving grace
At the same time, at present the company’s revenues are derived primarily from online gaming, with sports betting accounting for only 15% of the total. It was also the slower growing segment last year, with growth of only 4.3% while overall revenues grew by over 15%.
Its valuations are also pretty moderate. The company’s price-to-earnings ratio is below 14 times, which is not terribly pricey for a fast growing one. I think it could make for a good investment. All analysts seem to believe that. In fact many of them even think that the 888 Holdings share price will rise above its all-time highs, seen last November, in the next 12 months.
What I’d do about the FTSE 250 stock
There is an ethical aspect to buying gambling stocks, though, for me. Until I am convinced that it is well regulated, I will steer clear. Also, I want to dig further into how the acquisition will impact the company’s distribution of revenues between gaming and betting. It would also be important to figure out what it means for its currently very healthy earnings. That will take its time to work through, anyway.
