The Entain (LSE: ENT) share price has fallen 20% in the past five years while the FTSE 100 has risen 60%. But analysts are forecasting a happier future for the sports betting company.
In fact, Goldman Sachs raised its share price target on the stock to 1,100p in October. And that’s still below a consensus price of 1,175p. With the shares hovering around 790p at the time of writing, that would be a stunning 49% rise.
What happened?
We can see from the above chart that this looks like one of the FTSE 100’s more volatile share prices. And considering the business it’s in, I’m not surprised. Profiting from sports gambling depends so much on what’s happening each year. I’d expect the soccer World Cup to attract far more punters than the World Curling Championships, for example.
This is a business at the mercy of government regulation too. And it seems Chancellor Rachel Reeves might have the gambling industry in sight as a potential source of more tax revenue. In fact, she’s said companies in the sector “should pay their fair share of taxes and we will make sure that happens.”
That’s got to be one of the key risks right now. And I suspect such fears were partly behind the market’s unenthusiastic reaction to August’s expectations-busting interim results.
Even October’s trading update didn’t lift the share price. That’s even though CEO Stella David said: “With Entain becoming ever stronger and BetMGM growing profitably, we are increasingly confident in delivering consistent underlying growth and generating more than £0.5bn of annual cash from 2028.“
What next?
In some ways this might look like a money-for-nothing business. You take someone’s money on a bet, and usually don’t give them anything back. There’s clearly more to it than that though, and margins can sometimes be surprisingly thin.
For the 2024 full year, Entain posted a loss after tax of £461m. That’s even with net gaming revenue reaching £5,162m in the year. So what’s behind these ambitious broker price targets?
Analysts still see a bottom-line loss this year, but only a small one. They predict a bounce back to strongly-positive earnings in 2026, suggesting a price-to-earnings (P/E) ratio of 16 that year. It’s been dropping as analysts have upped their forecasts over the past few months. And a further mooted rise in 2027 would drop the P/E as low as 12.
The overall broker take on it? It’s one of the strongest Buy consensuses I can see for a FTSE 100 stock right now.
Winning odds?
I like these forecasts, and I like the way Entain is turning its business round so strongly. And coupled with a price target that might net us a 49% gain in a relatively short time, I think this is definitely worthy of consideration.
But, thinking on the damage a big tax hike could do, I’ll wait until after November’s Budget. And I’ll then revisit Entain as a possible long-term investment.
