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Should you buy this growth share after sales rise by 12%?

Betting and gaming company Ladbrokes (LSE: LAD) has released a positive trading update for the three months to 30 September. It shows that the company’s strategy is performing well and its outlook is increasingly positive. But does this mean it’s worth buying right now?

Ladbrokes was able to increase net revenue by 12.1% in the quarter. This represents its fourth successive quarter of net revenue growth, with the company’s margin benefitting from a strategic focus on a recreational customer base. This was despite poor horse racing festivals, with Ladbrokes experiencing losses at Goodwood and York. Much of this was offset by growth in BetStation and football, with the Euros helping to boost the company’s financial performance.

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The merger with Coral has thus far progressed as planned. Ladbrokes has agreed to sell 359 shops and is close to completion of the deal. If it goes through, the merger should provide it with an improved size and scale advantage versus rivals. This could boost its financial performance and lead to greater stability in what has been a fast-changing industry.

End of the road

In terms of consolidation within the sector, Ladbrokes’ peer William Hill (LSE: WMH) has today announced that it has ended talks to merge with Amaya. This follows William Hill canvassing the views of major shareholders. William Hill is still on track to meet full-year expectations and will recommence its share buyback programme. It had been put on hold in July.

Looking ahead, Ladbrokes and William Hill have bright futures ahead of them. For example, in the next financial year Ladbrokes is forecast to increase its earnings by 18%, while William Hill’s bottom line is due to increase by 9%. Both of these figures are ahead of the expected growth rate of the wider index and show that despite high competition within the gaming and betting sector, both companies appear to have the strategies to deliver strong financial performance.

Furthermore, Ladbrokes and William Hill offer good value for money. In Ladbrokes’ case, it has a price-to-earnings growth (PEG) ratio of 1. This shows that it offers growth at a very reasonable price and is more appealing than William Hill’s PEG ratio of 1.4. As such, its shares could continue to outperform William Hill. So far in 2016 they are up by 17% versus a 21% decline for its sector peer.

Of course, William Hill offers a higher yield than Ladbrokes at 4% versus 2.3%. However, its dividend isn’t as well-covered as that of Ladbrokes at 1.8 versus 2.1. This shows that Ladbrokes’ dividend could increase at a faster rate than that of William Hill. Alongside its more appealing valuation, higher growth rate and more stable outlook in terms of moving ahead with the Coral merger versus continued uncertainty for William Hill, Ladbrokes is the better buy for the long term.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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