Down 51% in a year! I reckon this oversold FTSE 100 stock is now ripe for a comeback

This FTSE 100 company has been in decline for several years, but Mark David Hartley reckons the stock could be set for a recovery.

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I’m always on the lookout for oversold FTSE 100 stocks and I think I’ve found one that’s primed for a revival. With the share price down 51% in the past 12 months, it’s in dire need of a recovery. 

Turning a company around doesn’t happen overnight but several signs suggest this one is heading in the right direction. Naturally, buying stocks that have been falling for months is risky. But recent developments could put this one back on track.

New strategy, new CEO, new licence

After peaking above £22 in late 2021, the share price of Ladbrokes’ parent company Entain (LSE: ENT) has been in steady decline. Early 2023 showed some signs of recovery but those dreams dissipated quickly. At £7.38, it’s lost two-thirds of its value in just two-and-a-half years. 

So what’s the deal?

Several factors could be blamed for the loss but it’s probably a combination of them all. When inflation tightens belts as it has recently, consumers prioritise survival over gaming and sports betting. In the past year, former CEO Jette Nygaard-Andersen made several acquisitions in the hope of boosting revenue. Unfortunately, this bet didn’t pay off and the company posted a net loss of £936.5m in its full-year 2023 results.

So if inflation doesn’t decrease soon, who knows when consumers will return to the betting shops? As it stands currently, the Entain share price could keep falling if the UK’s economic situation doesn’t improve.

To salvage some losses, the company is now looking to sell a swathe of assets. Dutch company BetCity, Ladbrokes Australia, Enlabs and CrystalBet are four recent acquisitions that could be included in the sale. And with Nygaard-Andersen now out of the picture, Entain is seeking a new CEO. Former Rank Group CEO Henry Birch, who also spent four years as chief executive of William Hill Online, has been tipped as a possible replacement.

That’s not all

The real cherry on the cake that could turn Entain’s fortunes around is the grant of a licence from the Nevada Gaming Commission. The company’s been working hard to satisfy the rigorous conditions that the commission demands before issuing a licence. Over the past year, Entain has sacrificed $100m in revenue by ditching over 140 unregulated markets to meet strict compliance regulations. Now it’s ready to start marketing to an entirely new demographic in the US.

Being granted the licence affirms the company’s commitment to improving its operations and better serving its customers. I think this is reflected in recent forecasts that predict earnings could double in the coming year. Using a discounted cash flow model, analysts estimate the share price to be 43% below fair value, with consensus on a 12-month price target above £10 – a 44% increase.

Now, I could go and throw my hard-earned cash into one of Entain’s betting machines and hope for a 50/50 chance of a win. But I like the odds to be more on my side. With all that extra cash flowing in from Nevada, I’m far more confident in the returns I could get from buying shares in the company.

And that’s exactly what I plan to do.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Mark Hartley 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.

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