Is it worth keeping an eye on City analysts when looking at FTSE 100 stocks?
Analysts aren’t perfect. Their predictions often follow the way the wind is blowing.
But they are very knowledgeable about the stocks they cover, which makes them a decent jumping-off point for finding underpriced shares.
One stock analysts are gushing over at the moment is gambling group Flutter Entertainment (LSE: FLTR).
Should I buy?
Of the 15 analysts covering Flutter, 14 have it down as a ‘buy’ and not a single one rates it a ‘sell’.
With the shares trading for £156, the consensus across analysts is a 12-month price target of £188 which is 21% higher. One analyst has a 12-month price target of £213 which is 37% higher.
These ratings are up-to-date too, mostly declared in the last couple of weeks after Flutter’s annual report on 26 March.
It might be the most positively covered company on the FTSE 100!
Analysts liking the stock is one thing, but should I buy the shares?
Up 158%
Well, there’s plenty to like here.
Flutter, which owns Paddy Power, PokerStars, Betfair and Sky Bet across its brands, is going from strength to strength.
It reported a year-on-year increase in revenue (25%), EBITDA (47%) and free cash flow (63%). Its number of users, measured in millions of monthly players, grew at around 20% as well.
The revenue is well-diversified too with the UK accounting for 24% of sales and the US 26%.
The shares grew 158% over the last five years too, only a handful of FTSE 100 stocks are up more than that.
Its fellow FTSE 100 betting firm Entain rose just 37% over the period and smaller rival 888 fell 47%.
No bets
Flutter, with income generated from online casinos or high-street bookmakers, is, of course, a sin stock.
Like investing in a firm that sells alcohol or cigarettes, an investment here aims to profit from a product that can harm people.
You might argue a few quid at the weekend on the football results isn’t a cause for alarm.
On the other hand, there will always be people who get hooked into a gambling doom loop and ruin their lives.
Indeed, some estimates put the percentage of suicides due to gambling losses at 11%.
Flutter does set ‘Play Well’ restriction targets to limit this type of harm, reaching 44.9% of accounts last year. But why not just apply them to every account instantly?
The reason is likely that incentives in a company like this will always align towards making the most money even if that means a few dubious ethical practices.
For that reason, this will be a stock I won’t be taking any bets on.
