The threat of tightening regulations is a constant risk to gambling stocks like FTSE 250-quoted 888 Holdings (LSE: 888).
The UK government, for instance, is set to announce reforms to the industry very soon. And if rumours are to be believed it could be scary reading for gaming companies. The Times has reported that measures like maximum stakes and the banning of free bets could be introduced.
But despite this danger I believe 888 in particular could be a great dip buy following recent share price weakness.
City analysts think annual earnings here will rise 37% in 2022 and a further 25% next year. These forecasts leave 888 shares looking dirt cheap. They command a sub-1 forward price-to-earnings growth (PEG) ratio of 0.2.
Expanding for growth
As a long-term investor I’m excited by 888’s aggressive expansion programme that could light a fire under earnings growth.
The firm’s in the process of acquiring William Hill, a move that will boost its size between three and four times current levels. It will also significantly bolster its position in Europe and gives 888 one of the most popular brands in the business.
The FTSE 250 firm also has excellent revenues opportunities in the US, a fast-growing market where the business has also been expanding to capitalise on loosening gambling laws.
Research suggests that the global online gambling market will enjoy compound annual growth of 11.7% between now and 2030. Growth in the US is expected to be even stronger in the period at 11.9%. I think internet gambling giant 888 is in great shape to capitalise on this trend.
A falling AIM share
Like 888 Holdings, Begbies Traynor Group (LSE: BEG) has also been extra active on the acquisition front in recent years.
Its commitment to M&A has seen the company significantly broaden its range of services and expand its geographical footprint. This in turn has led to a long record of robust annual earnings growth. And pleasingly, the AIM-quoted insolvency specialist is showing no signs of slowing down. Just last week it sealed the purchase of chartered surveyor Budworth Hardcastle.
A top stock for tough times
Begbies Traynor’s share price has risen strongly in the past four months. This is perhaps no surprise as demand for its insolvency services rises when economic conditions worsen. Yet it’s fallen back a tad more recently and so I’m thinking of jumping in.
Insolvency rates in the UK have ballooned. Latest government data showed a leap of almost 80% year-on-year in May to 1,817. The number is likely to grow still further as the UK economy likely enters a recession.
City analysts think Begbies Traynor’s earnings will grow 8% this financial year (to April 2023) and 3% next year. This leaves it trading on a forward price-to-earnings (P/E) ratio of 14.7 times. In my opinion this is a bargain given the company’s long track record of earnings increases and growing business opportunities.